Identity theft: It can affect your credit score in a number of ways

Have you ever imagined what would happen if your identity is stolen misused. It could have far more ramifications than one can imagine. The one who steals the identity can use it to open unauthorised account, make unauthorised purchases, apply for fresh loans, so on and so forth. 

In such a scenario, one collateral damage that ensues is that the credit score suffers considerably. Identity theft, more often than not, can have a significant impact on your credit score in a number of ways.

These are six ways in which identity theft affects you:

Unauthorised accounts: Identity thieves could open credit card accounts, loan in your name without your knowledge. If these accounts are used irresponsibly or go unpaid, it can result in negative marks on your credit report, lowering your credit score.

Missing payments: If identity thieves use your information to make purchases or obtain credit but fail to make payments on time, it can result in late payment notations on your credit report, which can lower your credit score.

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Increased credit utilisation: If an identity thief maxes out credit cards or other lines of credit in your name, it can increase your credit utilisation ratio. High credit utilisation can negatively impact your credit score.

New credit inquiries: When a thief applies for credit in your name, it results in hard inquiries on your credit report. While a couple of inquiries may not adversely impact your score, multiple inquiries within a short span of period may have an adverse effect.

Collection accounts: If identity thieves accumulate debts in your name and those debts are sent to collections, it can severely damage your credit score. Collection accounts remain on your credit report for seven years and can significantly lower your score.

Identity mix-ups: Sometimes, identity theft can lead to a mix-up of credit information between you and the thief. This can result in erroneous information on your credit report, potentially lowering your credit score.

To lower the impact of identity theft on your credit score, it's important to monitor your credit report regularly for any suspicious activity. It is also recommended to work with the credit bureaus and creditors to dispute any fraudulent activity which can help restore your credit score over time.

Frequently Asked Questions:

How does identity theft affect your credit score?

Thieves who stole your identity could provide false information to banks, leading to inaccuracies on your credit report. These can harm your credit score considerably, thus making it challenging to procure credit in the future.

What is credit mix?

This refers to the different credit accounts you have on your credit report. These include car loans, credit cards, student loans, personal loans, among others. 

How does a credit mix impact the credit score?

Having a diverse mix of credit accounts shows to lenders that you can handle different types of credit in a responsible fashion

Is this advisable to take new credit to improve the credit mix?

No, it is generally not advisable to take on new credit in order to improve your credit mix. 

How is average age of credit accounts calculated?

Average age of credit accounts is calculated by taking the sum of the ages of all your credit accounts and dividing it by the total number of accounts.