If you've been a victim of identity theft, you know how much work it can take to clear your name. In theory, identity theft should not have an ongoing impact on your credit reports or scores. But the reality can be much different.

Here are the top 3 ways identity theft immediately impacts your credit

#1 Higher balances on existing accounts

The fastest growing type of identity theft reported involves the use or misuse of an existing credit account, according to a report by the Department of Justice. If you aren't monitoring your accounts closely, you may not catch a sudden increase in the balance on your credit cards. Unfortunately, balances that are close to their credit limits can have a significant impact on your scores.

High credit utilization (balance/credit limit) can drop a high FICO score of 780+ by as much as 45 points! YIKES!

The good news here is that once those new charges are successfully disputed, your credit scores should no longer be impacted by those fraudulent charges.

#2 New accounts and late or missed payments

When a crook uses your personal information to open a new account, that account will typically appear on your credit report. New accounts added to your credit report will cause a slight drop in your score. The identity thief will often destroy the consumer's credit score by not making payments on the fraudulent accounts.

Most consumers don't learn that their information has been compromised until after the damage has been done. In this scenario, the thief opens new accounts, makes purchases, and pays the bills for a little while, and then they disappear. The damage can be severe. In fact, even a minor delinquency, such as a 30-day late, can cause a high FICO score of 780+ to lose as much as 100 points! Imagine how much your score would drop if you did not notice this for several months.

#3 Credit inquiries

Every time a scammer applies for credit using your personal information, that inquiry is recorded on your credit report as a hard inquiry or hard pull. While multiple inquiries don't typically have a significant impact on one's credit scores, they will start to add up.  This can be a hard thing to clean up.

When you start working to clean up the mess, not only will you have to clean up the fraudulent trade lines, you will also need to work to clean up the hard inquiries to make sure that any that have been made by the identity thieves are removed.

The Moral of the Story:

Now that I’ve scared you with all the things that can happen when you become a victim of identity theft, it’s important that start monitoring your credit report on a regular schedule.  You can get an absolutely free copy of each of your credit reports from TransUnion, Experian, and Equifax once per year by going to www.annualcreditreport.com 

Don’t wait, go ahead and take a look today.  If you find trade lines or balances that you believe to be fraudulent, there are steps you can take to clean up the mess and report the crime. 

Come back tomorrow to learn about your rights and how to recover after becoming a victim of identity theft.