How Can Identity Theft Negatively Affect My Credit Score?

Identity theft is a major problem in the world these days, given that over $500 million worth of fraudulent transactions are processed each and every year in America alone, we all need to be cautious of our activities when it comes to Internet shopping and providing identification - so that we can not only protect our identity, but also our credit report.

Many people will wonder why it is that identity theft can have such a negative impact on your credit score. After all, what is the link between identity theft and credit reporting and how strong is this link? In this article, we will take a look at the relationship - to give you a better idea of the reasons why you need to take steps to protect your identity.

How A Stolen Identity Is Used?

In reality, the only reason why someone would want to steal your identity is to gain in a financial sense. To understand this, we need to discuss how it is that personal details, such as a social security number, bank account number, credit card number, passport number or driver's licence number can be used fraudulently.

The idea is really quite simple. A fraudster will follow these next steps to obtain credit in someone else's name:

• Obtain a form of personal identity.
• Make an application for credit in that person's name.
• This credit is usually with a small organization (not a bank).
• Credit is awarded - your file is updated - fraudster never returns or pays the money back.

Obviously there are a few steps between these four; however this gives you the general gist of the idea.

Why Your Score Is Negatively Affected?

It is the fourth point above which has the most effect on your credit score. When the credit is awarded and your files updated, the credit reporting agencies treat this as a normal application for credit. When you fail to make the payments, the creditor will report this to the credit reporting agency, and your score will be negatively affected.

If you have a credit monitoring facility on your credit file, you could have picked up on these changes at the very beginning - and taken steps to avoid at developing further. However, if you do not have identity theft protection, this type of scenario could impact you well into the future.