Identity Theft & Your Credit Score

Many individuals, even relatively wealthy ones, support their lifestyles through debt. Doing so isn’t necessarily a bad thing as long as the debt is managed reasonably and risk is minimized. One risk to be aware of is the inextricable link between identity theft and credit score.

Recognize the risk

Identity theft is a problem that exploded right along with the Internet. Now that working, playing and, well, living online are common activities, the crime doesn’t get quite as much attention. Yet it’s alive and well. In 2011, identity theft increased by 13%, with more than 11.6 million adults affected, according to a report by Javelin Strategy & Research.

When you rely on credit — and thereby your credit score — to finance your lifestyle, identity theft is a major threat. Obviously, a thief who racks up charges and takes out loans in your good name has no intention of repaying those debts. And, if the crime goes undetected, your credit score could plummet. What’s worse, the recovery process may take months.

On top of that, a credit score drop can be especially harmful in light of the current lending environment. Credit scores tend to range from 350 to 800. In healthier economic times, a 720 would generally keep you in favorable standing with borrowers. But, as the stricter standards of today’s lenders persist, that number has increased to the 740 to 750 range — with higher scores generally necessary to gain the most favorable rates.

Stay informed

So how do you manage the risk of an identity fraudster undercutting your credit score? Simply put, you’ve got to stay informed. The major consumer reporting companies (TransUnion, Equifax and Experian) are required to provide you with a free copy of your credit report, upon request, once every 12 months.

Rather than requesting your free reports all at once, spread out your requests so you can check one credit report every four months. In addition, take common-sense measures such as diligently safeguarding your Social Security number, shredding mail and other documents with personal information, and maximizing the strength of your online user names and passwords.

If you’re particularly concerned about falling victim, consider an identity theft protection service. These services, however, can be expensive. So perform a cost/benefit analysis before signing up. Also check with your employer to see whether it provides you some protection as a benefit.

Stay wary

Unfortunately, in today’s high-tech world, identity theft isn’t going anywhere. The most important things you can do are to stay wary of this threat and take steps to prevent it.