If you’ve ever been a victim of identity theft, know anyone else who has, or have read some of the horror stories, then you know how debilitating the situation can be. Your credit can be destroyed, your savings depleted, and your life impaired – all for a situation that you didn’t create. The credit damage can get so severe that you will be in desperate need of credit repair.
The problem is that identity theft affects nearly every corner of your life. It’s not so much dealing with a giant bonfire, as much as it is fighting off a series of ongoing brush fires. Even if you know what you’re doing, you can get worn down the process.
How Identity Theft Works
Identity theft begins when a thief obtains personal identifying information, generally known as PII. The US Department of Labor has a more technical definition as to what PII is. But for our purposes, it’s any information that connects to your name, but is not generally available to the public.
For example, your address is not PII, because it is publicly available. That’s also the case when it comes to your phone number. Because of that, such information is not very useful to a thief. However, other information, such as your Social Security number or any specific credit or bank account numbers are considered PII. That’s because once a thief has it, he or she also has access to confidential financial information, including the ability to apply for credit in your name.
As a rule, PII is closely guarded by financial institutions, and they are even required to do so by law. But PII does slip out for a variety of reasons, and once it does, disaster strikes.
Armed with your name, Social Security number, and a bank account number or two, a thief is free to apply for credit in your name. It’s even possible to apply for a mortgage, or to apply for a federal income tax refund using your identity.
What Identity Theft Does to Your Credit
Once in possession of your PII, an identity thief can make as many credit applications as he or she chooses. This will lead to an increase in credit inquiries on your credit report, which will have a negative effect on your credit score. But it will also result in new credit lines, that will also lower your credit score because they are brand-new and do not have an established credit history.
That’s just the damage that will be done up front. It will get steadily worse from there.
Once the credit lines and loans are in place – and a thief has possession of either the merchandise or the cash that the credit provided – no monthly repayments will be made. That will lead to a string of late payments that will cause your credit score to plummet.
As that happens, you will likely start getting phone calls and correspondence from lenders, requiring you to honor “your obligations”. You may even find that your existing credit lines have been frozen as a result of all the negative credit information.
If left unpaid, the bogus debts will eventually be turned over to collection agencies, and you will be harassed for payment. Some of the accounts may even be converted to judgments, which will effectively turn them into your permanent obligations.
The Impact of that Credit Damage on Your Life
You might believe that you will get some kind of pass since the new credit was obtained on bogus grounds, and you personally didn’t authorize it or participate in it. Unfortunately, that’s not how the credit system works. An obligation that appears under your name will remain under your name until you can prove otherwise, or somehow discharge the debt.
Even if you are successful in undoing the damage done by the theft, it will almost certainly take years to untangle. In the meantime, both your credit and your credit score will be severely damaged. This will impact almost every aspect of your life.
For example, if you need to apply for a loan, the credit damage done by the identity theft may prevent it from happening. You may also be unable to qualify for a mortgage to buy a new home. Renting may not be an option either, since a landlord is very likely to review your credit. You may even find yourself being turned down for job applications and even for certain insurance policies.
The moral of the story is this: even though the credit destruction brought on by the identity theft was not your fault, you will still face the consequences. And it will be up to you to fix the situation.
How to React to Identity Theft
If you’re a victim of identity theft, there are some steps that you need to take. They won’t make the problem go away, but they will minimize the damage.
Be ready to react at the first sign of identity theft. The first sign may be a call from a creditor that you’re not familiar with, or even one you have a relationship with, reporting suspicious activity on your account. If you get such a call, you need to spring into action.
WARNING: Be sure that you don’t give any information about yourself over the phone – the institution should already have that information (if they are asking for it, it’s almost certain that it’s a scam).
The idea is to get involved as early in the process as possible. By doing so, you will be in a position to:
- Know that a theft of your identity has occurred,
- Cut off new charges or even new applications for credit, and
- Take corrective action – the sooner you get involved, the less damage that will be done.
This is also why it’s an excellent idea to monitor your credit on a regular basis. It will give you an opportunity to see when new credit has been applied for, or even when the loan is granted. There’s often a short window within which you can disavow a debt, or deactivate an account. It’s not a guarantee, but it’s worth the effort.
Contact the credit bureaus. At a minimum, you should put a statement on your credit report – with all three credit bureaus, Experian, Equifax, and TransUnion – alerting creditors that you have been a victim of identity theft, and not to grant any credit in your name without contacting you first.
You might also investigate the possibility of adding a credit freeze, that would stop any new credit from being issued.
Contact the police. Identity theft is a crime, and you need to handle it as such. That means getting the police involved immediately. That will require filing a police report, which is a critical step. The police report will establish officially that you are a victim of identity theft, when it happened, and also that you are taking steps necessary to deal with the crime. You will need that report in dealing with creditors, the credit bureaus, and possibly the courts.
This will also serve to get the police involved in bringing the perpetrators to justice. However even if they are successful, that still won’t cure the damage that’s been done to your credit. However the police report will serve as an important tool in the process.
Keep records. Be sure that you keep records at every step of the process. This will include copies of your credit report, correspondence with unauthorized lenders, as well as a phone log listing your conversations. You need to list who you spoke to, what you spoke about, and when. You should also list the steps that you are taking the deal with the theft.
This information may be helpful later on, when you are dealing with the various parties to your credit, especially with any legal action.
Contact any new creditors that you didn’t apply with. If there are any creditors that you did not personally apply with, contact them as soon as possible. Your first concern should be putting a stop to the issuance of any further use of that credit line. You should also be prepared to show evidence that you did not apply to that company, nor did you authorize them to proceed.
Not all creditors will cooperate. But you won’t find that out unless you try. If you do have any creditors who will cooperate, that will be one less account that you will have to worry about.
Why Credit Repair May Become Necessary
If it seems as if recovering from identity theft is a lot like a substantial part-time job, it’s because it is. Identity theft can lead to the creation of a dozen or more unauthorized loan accounts. It can also lead your bank account or investment accounts being cleaned out. Along the way, your credit will be virtually destroyed, which will limit your options.
You’ll probably need help in the recovery process. The best course of action is to retain the services of a law firm that specializes in credit and credit repair. Most creditors will play hardball, despite the fact that you were a victim. It may take the strength of a law firm to counter that resistance. The sooner you correct an identity theft and put it behind you, the sooner you will get your life back.