Identity Theft Impact on Credit Score

Identity theft impact on credit score should not be underestimated as one of the most important business criteria for making credit decisions is a person’s credit score.

There are a variety of credit scoring models which provide a score of between 1 and 999. For simplicity purposes, the higher a person’s credit score is within the range offered by the models, more chances the person has to obtain a loan and receive a lower interest rate. However, a credit score is more than just a number which is often used by others to assess a person’s financial reputation for renting an apartment, selling insurance, and employment. In fact, some marriages may have better chances of survival if the financial position of the partner is assessed before the marriage by going over their credit report history and credit score. Some may think it’s rude to go over the private information of a partner we intend to marry, but marriage is a long term commitment and privacy will have to be pierced sooner or later, so why not sooner before a long term commitment is signed. A credit score can say a lot about a person and to understand the identity theft impact on credit score or how a credit score can shed light on an individual’s personality, let’s look at how a credit score is created. A credit scoring model considers various factors for determining a person’s score and the top three factors along with identity theft impact on credit score are listed below:

Paying bills on time – This factor has the most impact on a credit score. A person’s ability to make the required minimum payments on time consistently can have a great impact on the credit score. If the account owner is unaware of a particular loan as a result of identity theft, then the credit report may reflect late payments and the credit score will be affected.  On the other hand, consistent late payments may also suggest that the person is having financial difficulties, is unorganized, careless and not committed to his or her obligations. It is important to remember that the models do not suggest paying off the entire loan balances but rather making the minimum payments on time.

Outstanding balances  - If a person consumes most of the available credit all the time, then the credit score gets adversely affected. Usually, a lower credit balance-to-limit ratio is best for a higher credit score. Therefore, stolen funds of existing accounts which results in consuming most of the credit limit can have negative consequences on credit scores because of identity theft.

Account age  - The longer a person maintains a credit account, higher the credit score will go but interestingly enough, this one is tricky for the credit scoring models because when a person faces identity theft, the person is forced to close an established account and it may not be apparent to the models that the account was closed as a result of identity theft and the overall credit report may not reflect the changes resulting from identity theft.

These are just some of the important things to keep in mind when it comes to credit scores. You may not be able to limit your borrowing needs in the short term, but if you check your credit reports regularly to detect, report and resolve identity theft as soon as possible and make your minimum payments on time, you can maintain a good credit score.

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