Becoming a victim of Identity Theft is nobody’s idea of fun. Quite aside from the understandable emotional impact and feelings of violation, identity theft can cause you a host of financial problems. In the Identity Theft Resource Center (ITRC) 2021 Consumer Aftermath report, about a third of all respondents reported that they’d experienced financial hardship after an identity theft. Most of those had been turned down for loans or housing, and all of them had been harassed by bill collectors. 

In an ideal world, your Credit score and financial history would revert to their previous levels as soon as you report your identity theft, but the world we live in is far from ideal. In practice, it can take months (sometimes many months) for fraudulent charges to disappear from your record. Knowing how to rebuild credit can help you get by in the interim and serve you well in the longer term as well. 

What Makes Up Your Credit Score

There are five factors that make up your credit score: your payment history, the amount of outstanding debt you owe, the length of your credit history, the percentage of new credit on your record, and your overall credit mix (retail, credit cards, loans, mortgages, and so on). 

Of those five factors, far and away, the most important is your payment history. Potential creditors want to know that you’ve got a solid track record of paying your bills on time, so this single measure makes up 35 percent of your overall score. The next most important is the amount you owe and how it relates to your total available credit (if you’re maxed or close to it, you’re a bigger risk). This accounts for another 30 percent of your total score. 

The other three factors are less obvious. One is the length of your credit history: a long-term history of responsible money management counts for more than a shorter history, though that’s good too. This makes up 15 percent of your score. New credit accounts for 10 percent of your total score, and that’s a tricky one: the more new credit you rack up in a short time, the likelier you are to default, so lots of new credit can count against you. The final 10 percent comes from your overall credit mix (the more kinds of credit you can manage successfully, the better your money-management skills likely are). 

How Identity Theft Impacts Your Credit Score

With those percentages in mind, it’s not hard to see how identity theft can hit your credit score like a bomb. The typical playbook for identity thieves calls for taking out a bunch of new credit, maximizing it, and then skipping on the bills. In many cases, you won’t even know it has happened until you start getting collection calls. 

That immediately impacts the two biggest aspects of your credit score, your amounts owed and your payment history. Suddenly – on paper – almost all of your available credit is maxed to the hilt, and you’ve abruptly stopped paying your bills on time. If you’re unlucky, the thief may have also drained your savings accounts as well, which will make it hard for you to keep up with even your legitimate bills. 

The amount of new credit on your file will count against you as well because to the lender’s eye it looks either irresponsible or – even worse – a desperate play by a borrower who’s circling the drain and has little to lose. Your overall credit mix might become broader, but that won’t come close to countering all of the negative impacts. Finally, the overall length of your credit history won’t change, but the length of your good credit certainly will. 

If You’ve Become the Victim of Identity Theft

Whether you recognized some of the early warning signs of identity theft or were blindsided by it, your first few steps will be identical. Start by going to the FTC’s IdentityTheft.gov website and filing a complaint. This does two things: it makes your case “official,” and you’ll have a case number to use in rebuilding your credit; and it walks you through the creation of a recovery plan that will help you put the theft behind you. 

Many of those steps revolve around having fraudulent accounts closed, purchases negated, and the corresponding entries removed from your credit files: 

• Report your identity theft to either TransUnion, Equifax or Experian (that one will inform the others). 
• Request copies of your credit reports from each of the three. 
• Reach out as well to the lesser-known National Consumer Telecom & Utilities Exchange, a specialist credit agency used by utility companies and phone service providers. 
• Place a fraud alert and credit freeze at each agency to put a stop to any further activity by the scammers.  
• For each account opened fraudulently by the scammers, contact the creditor. Let them know that the account resulted from identity theft and request that it be closed. Some creditors may request that you file a police report with local law enforcement, aside from your FTC complaint. 
• For each legitimate account that’s been compromised and used by the identity thief, reach out to both the institution (bank or credit card provider) and any merchant who’s been victimized by fraudulent purchases. Have those purchases flagged as fraudulent and the charges reversed. 
• For accounts – legitimate or otherwise – that have already been placed in collection, notify the collection agency that the debt is fraudulent and that it has been challenged. You may need to be especially persistent with collections companies, depending on how ethically they’re run. 
• In each case, as you work your way through the various fraudulent charges, document everything you’ve done (so you can prove it, if challenged or if a creditor loses your paperwork).

This can take a significant degree of time and effort, so be patient and, above all, persistent. As the saying goes, the squeaky wheel gets the grease. Plan to be really squeaky. 

How to Rebuild Credit: 7 Steps

Rooting out the effects of your identity theft can be a drawn-out process, and while it’s underway, you’ll still need to get on with your daily life. That almost invariably requires some access to credit, which in turn means you’ll need to rebuild your credit. The process is largely the same as it is for anyone recovering from a real financial crisis, so the process is pretty well-established. 

1. Keep paying on the legitimate accounts

On any accounts with a fixed payment, keep making your scheduled payments. Where you’ve challenged charges or borrowing but also owe on legitimate purchases or borrowing, pay the correct amount on your legitimate charges. This will maintain your record of on-time payments once the fraudulent activity washes out. 

2. Set up automatic payments

If you have a history of missing payments due to simple absent-mindedness or disorganization, you’ll need to change that now that the rest of your history isn’t good enough to patch over that shortcoming. The simplest way is to set up automatic payments, so you won’t have to think about it. 

3. Pay off some of your existing credit, if you have the means

This will reduce your overall credit usage in the short term while you’re waiting for the fraudulent credit to be removed from your record. 

4. Keep your oldest accounts open

It’s tempting to close some of your accounts, especially if the identity thief spotted your little-used “emergency” accounts and maxed them. While it feels sensible to reduce the number of accounts you’re managing, the length of your credit history makes up 15 percent of your score. Don’t shorten it. 

5. Monitor your credit reports

As you successfully challenge each fraudulent account or purchase with the corresponding creditor or merchant, follow up to make sure that entry has been removed from your credit report (sometimes these things fall through the cracks). Every derogatory entry that falls from your report will have a correspondingly positive impact on your score. As a bonus, you’ll sometimes find honest errors on your report that might otherwise have “flown under the radar” but also impact your score. 

6. Be wary of “rebuild your credit” offerings

If you Google “how to rebuild credit,” you’ll find plenty of sites offering to help you do that through new credit (at an interest rate that ensures them a handsome profit, of course). That’s a double-edged sword for victims of identity theft: if the thief took out lots of new credit in your name, applying for more could conceivably make things worse. New credit only amounts to 10 percent of your total FICO score, though, so it’s worth the risk if you legitimately need it. 

7. Get a secured credit card

If you do feel the need for new credit, consider talking to your existing bank or card provider about a secured credit card. You’ll need to place a deposit equal to your credit limit with the creditor as security, but then you can use it like a regular card in order to show consistent on-time payments. As those build up on your credit report, they’ll raise your score, and after a specified period of on-time payments, you’ll get your deposit back. 

Learn From the Experience

One sobering statistic from the ITRC’s 2021 Aftermath Report is that 29 percent of identity theft victims surveyed were repeat victims, and that number has been growing year over year. This is definitely not a club you want to belong to. 

That’s not to say you need to become utterly paranoid about using the internet or swear off the use of credit entirely. You can do either or both, of course, but staking out a common-sense middle ground – using both credit and the internet, but taking appropriate precautions – is the better alternative. 

That simply means staying educated about frauds and scams (this blog is a good resource), knowing the potential risks and how to avoid them, and using Spokeo’s people search tools to verify that people really are who they say before you trust them. For extra security, you might even consider Spokeo Protect, our identity-protection service. 

With those precautions in place, you can go back to living your normal life. You won’t be completely immune to future identity thefts, but you’ll have reduced the risks sharply. 

Sources

• Identity Theft Resource Center: Key Findings Infographic
• myFICO: What’s In My FICO Scores? 
• Identity Theft: Report Identity Theft and Get a Recovery Plan
• National Consumer Telecom & Utilities Exchange: Consumers
• AARP: 5 Proven Ways to Boost Your Credit Score
• Identity Theft Resource Center: Key Findings Infographic