Identity theft can be incredibly frustrating. The damage it causes involves more just than losing money in the short term. Most victims of identity theft can end up having problems getting credit and/or loans months or perhaps even years after the incident.
Here is a brief breakdown of the challenges involved in obtaining a loan after a case of identity theft.
How identity theft affects getting a loan
Getting approved for a loan requires you to have a good credit score. Your credit score allows lenders to assess the risk of lending you money and your ability to pay it back.
The most common impact of identity theft on your ability to get a loan is the negative effect it has on your credit report. Criminals can use your identity for fraudulent means, which can impact on your credit report in the following ways:
- The opening of new accounts brings down the average age of your accounts, causing your credit score to drop temporarily.
- Most identity thieves will max out the lines of credit they open. Such high credit utilisation brings down your credit score.
- Unpaid debts caused by identity thieves will damage your credit score.
- High credit balances translate to a high debt-to-income ratio. This makes bills appear to be higher than they really are.
As a victim of identity theft, you might have to spend several months or years contesting and straightening out the negative credit information. During this time, obtaining loans and credit are likely to be quite challenging.
How to increase your chances of loan approval
If you are a victim of identity theft, it might be hard – but not impossible – to get approval for a loan. To increase your chances, you might want to first take steps to clear up the trail of fraudulent debt. The key steps you can take include:
- Checking your credit reports from all three credit reference bureaus (Experian, Transunion and Equifax) – this allows you to get a full picture of everything.
- Logging a fraud alert with the credit reference bureaus or Cifas – a fraud alert reduces the chance of future identity theft incidents by making it harder for anyone to open up more fraudulent credit and loan accounts.
- Contacting companies involved with the fraudulent activities – a lot of them, such as credit card companies, have a fraud department that can work with you to close the affected accounts and remove the fraudulent charges.
- Reporting the matter to the police – report the incident and keep a copy of the incident report number.
- Changing all of your account details, including passwords, logins and PIN numbers – this includes not just your accounts affected by fraudulent activity but also those that have not been affected yet. There is no telling what identity thieves will prey on next once they have your information.
Today’s society of easy and legal access to data and information unfortunately makes it easier than ever for a thief to steal your identity. If you become a victim of identity theft, it might be challenging to obtain loans in the future. However, don’t panic; everything can be undone – it will just take a little time and effort.
For more information on identity theft, check out our articles on how to report identity theft and how to tell whether you are vulnerable to identity theft.
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