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Your credit score is the one constant used by lenders to determine whether you’re approved or denied loans – and interest and premium rates paid for credit cards, homeowners and auto insurance, even deposits for new utility service. But that three-digit score itself may frequently change.
It’s typical for your score to slightly fluctuate by a few points; they constantly change based on spending and payment at any given time, information in your credit report (which is constantly being updated), even the passage of time.
But a larger, unexpected drop can signal identity theft – and identity theft can certainly devastate a score, at least in the short term. Although there are many credit scoring providers, each using slightly different formulas (just as your credit report may vary depending on the credit reporting bureau), some general guidelines on how ID theft can impact your credit score:
- New credit inquiries. Each time new credit is applied for in your name – by you or an identity thief – lenders check your credit report. One additional credit inquiry should have little impact – typically, fewer than five points (but more for those with few accounts or a short credit history), reports FICO, whose scores are used by most lenders. The drop deepens with more inquiries that result when ID thieves apply for multiple account in victims’ names, as they often do.
- New accounts. Representing only 10 percent of a FICO score, the problem isn’t with new credit and loans issued in your name – again, expect only a drop of only a few points, and likely a higher score credit-seeking newbies. But a bigger hit occurs when many new accounts are issued over a short period (say, three new credit cards are issued in the span of one month) to decrease the length of you credit history, which comprises about 15 percent of your score. But even worse is when those become delinquent because the ID thief isn’t paying the bills. Here’s why:
- Late payments. The two biggest factors in scoring: Payment history that typically accounts for about 35 percent, and amount(s) owed comprise another 30 percent. So when an ID thief opens one or more new accounts in your name, racks up charges but doesn’t pay, your score will suffer. Just one, even small late payment can drop credit scores roughly 100 points, taking up to three years to rebound. Further black marks occur when unpaid bills are turned over to a collection agency.
- Higher balances on existing accounts. If a thief gets access to an existing account – say, maxes your credit card – you won’t be liable for fraudulent charges, but your score could suffer. That change in your so-called “credit utilization” (the difference between your existing balance and account spending limit) could drop credit scores as much as 45 points. The good news: When fraudulent charges are successfully disputed, the ding is erased.
So along with those free credit reports that detail your credit history at annualcreditreport.com, it’s wise to keep tabs on your credit score – even if you have no plans to apply for new loans or plastic. (Credit scores are not included in free reports allowed three times per 12-month period.)
Banks and credit card companies may provide requesting customers with free scores – often each month; at websites including creditkarma.com, mint.com, creditsesame.com and quizzle.com, the only tradeoff is having to receive promotional emails for products such as credit cards and loans that generate those websites a revenue-share for customer enrollment. (So don’t use your primary email account unless you want a lot of spam.) But beware of “free” credit score scams. If a huge score drop raises your fraud antenna and/or you discover bogus accounts in your name, follow this recovery plan from the Federal Trade Commission.
For information about other scams, sign up for the Fraud Watch Network. You’ll receive free email alerts with tips and resources to help you spot and avoid identity theft and fraud, and gain access to a network of experts, law enforcement and people in your community who will keep you up to date on the latest scams in your area.
