How Identity Theft Affects Your Credit & How To Fix It

How Identity Theft Affects Your Credit & How To Fix It

According to the 2018 Identity Fraud Study conducted by Javelin Strategy & Research, there were 16.7 million cases of identity theft in 2017, which is a “record high” according to the report. The study also says fraudsters have been able to reel in more and more victims despite the efforts to combat identity fraud. Last, identity theft has led to the amount of money stolen to rise to $16.8 billion.

And if you think the odds are in your favor, think again. In 2017, approximately 1 in 15 people were victims of identity theft. There’s a chance you’ll be affected by identity theft in your life, and when it happens, it can ruin your credit and make your life a living nightmare.

In this article, we look at how identity theft ruins credit, how to fix it and what you can do to protect yourself.

How Identity Theft Happens

In a nutshell, identity theft happens when a thief gains access to your personal information, such as your name, social security number, bank account information, or credit cards. Once they have access to this information, they can open lines of credit in your name, make purchases on compromised credit cards, and even claim your tax refund. The way people do this vary on a case by case basis.

Sometimes, thieves can go through your trash to piece together all the information they need to steal your identity. Sometimes they steal your mail. In other cases, thieves use a tactic called phishing, which is a technique in which they send you an email that looks like it’s from your bank or other trusted institutions asking you to update your username and password, but in reality, it’s a way to get access to that information.

How Identity Theft Ruins Your Credit

The primary way in which thieves ruin your credit score is by making purchases in your name and then not paying for them. If you already have less than perfect credit, this damage might take years to fix, and might make it difficult or impossible to get credit. Even when the theft is found and reported to the proper credit agencies, victims still face an uphill battle to repair their credit.

When a thief makes purchases in your name and then doesn’t pay, not only do the late payments show up as a negative on your credit report, the account will surely go to a collection agency, which is another ding. It’s not uncommon for people — even with good credit — to lose 100 points or more when they’ve become victims of identity theft. Lastly, the victim is usually not aware that someone has stolen their identity until it’s too late. When these fraudulent debts go unpaid for a specific period, the creditor may sue the victim. You can fight this in court, but that involves legal fees and a tremendous amount of time.

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How To Fix The Problem

The first course of action is to contact your credit card companies and your bank the minute you suspect someone has stolen your identity. Tell them what happened and begin the process of working towards a solution.

The next step is to close the accounts that have been opened in your name and have cards reissued for any accounts you believe to be compromised.

Another step to take is to put a freeze on your credit by using what’s called a fraud alert. This alert lasts for 90 days and it forces lenders to take additional steps to verify your identity before they’ll let you open a new account. If the damage is more widespread, you can ask for a credit freeze, which makes it so no one can access your credit report, which means no one can open any new accounts in your name.

Also, it’s essential you be vigilant and dispute all suspicious charges with your creditors.

Sometimes, the damage to your credit may be so severe and complex, that you need to use the credit repair services of a specialized agency that helps repair credit that’s been damaged due to identity theft. There are many online companies you can choose from or you can opt for a law firm that specializes in this work. Getting the help of an agency might be the way to go because it takes the hassle and burden off your shoulders and can often get better results than if you were to go it alone.

How To Protect Yourself

To better guard against identity theft, here are a few things that you can do to reduce your risk.

  1. Use Strong Passwords For Online Banking
  2. Avoid Clicking Links Sent To You Via Email That Ask for Personal Information
  3. Monitor Your Credit Report
  4. Shred Personal Documents Before Throwing Away
  5. Never Give Out Personal Information Over the Phone
What is a Charge-Off?

What is a Charge-Off?

Learning the lingo of the credit world is an important part of keeping yours intact. One of the terms that you should be aware of is “charge-off.” This may seem like a complicated term at first glance, but the true definition of it is quite simple. If you don’t pay off your debt for several months in a row (usually, six), a creditor may label your debt as a loss in their records. This labels your debt with them as a charge-off on your credit report. Having a charge off on your credit report is one of the worst things that you can have and the most irritating when doing credit repair. It signals that you aren’t responsible as a borrower which can influence future creditors against trusting you with their money.

How a Charge-Off Affects Your Credit Report

A charge-off can stay on your credit report for up to seven years. This up to a variety of different factors including when you start paying it off and if it has been passed on to a collections agency. If you have a charge-off, then you’ve probably been dealing with multiple hits to your credit report for a long time. These hits would have come from the multiple missed payments. But finally getting a charge-off makes a huge dent in your credit report. Also, if your debt ends up getting passed off to a collections agency, then that’s could affect your credit score as well. If you neglect to pay the collections agency that has taken responsibility for your debt, then that could negatively affect your credit score. Dealing with a charge-off can set off a never-ending chain of events that could deal out a huge blow to your credit that could inevitably take years to recover from.

Even if you pay your charge-off debt in full, that doesn’t mean that your charge-off is going to be wiped off of your credit report. When you pay off the debt, it’ll change the status of the debt on your credit report to “charge-off paid” or “charge-off settled.” This is more favorable than having the charge-off on your credit report, but it’s still going to linger on your credit report for seven years.

Another option that you have is to negotiate with your creditor. They might take the charge-off off of your credit report if you pay the debt in full. If your inability to pay the debt dealt with a life event like jobless or a major medical issue you might be able to influence your creditor one way or another by displaying a pattern of positive payment history before that life event. It’s not a sure thing, but it’s definitely worth a try.

How to Pay Off Charge-off Debt

Contrary to popular belief, getting a charge-off doesn’t mean that you aren’t still responsible for the money that you owe.  It just means that the debt is deemed unlikely to collect. Your debt is still going to be owed until it’s paid, settled, or discharged in a company proceeding. Your debt might have been sold to a third-party debt collector after your debt was charged-off. That just means that you’re going to have to get in contact with someone new in order to deal with your debt.

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If they haven’t sold your debt to a collection agency yet, then try to get in contact with the original lender. Talk with them about your options which may include introducing a payment plan, paying off the debt in full, or settling it for a lower amount. If they have sold it to a collections agency, be sure to ask for proof beforehand that they have ownership of your debt. Once you have that proof, get in contact with them as soon as possible in order to figure out the best path towards paying off this debt. Sometimes, new creditors won’t lend you out any new credit until you take care of all of your debts that are past due. If you’re planning on acquiring any new debt (home, auto, etc.) then it’s very important that you take care of this debt as soon as possible. Don’t let a charge-off debt take control of your life any more than it already has.

If you have a charge-off on your credit report, it’s not the end of the world. You absolutely should work towards getting that debt paid off and possibly even getting the charge-off taken off of your credit report. But, if you’ve done all you can do, then practice positive credit management (paying your debts on time, monitoring new credit lines, etc.) in the meantime in order to build back your credit score and get your credit fix. The effect that the charge-off has on your credit report will wane in time. In turn, be sure to use your credit responsibly and your credit score will be stronger before you know it.