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Identity Theft: What to Avoid if You’re New to the Money Game

Aug. 9, 2012
Managing Money
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If identity theft is causing you to be denied for a savings account, it means the thief has likely used your information to set up multiple accounts and accrued debts in your name. Until you take steps to reverse the damage, you are responsible for these debts, and they will affect your credit score. You can think of a credit score like a resume. It proves whether or not you are a responsible borrower, and without a good score, no bank or lender will deal with you. Check out NerdWallet’s full explanation of credit scores to learn more.

There are two ways that the accounts the identity thief has taken out in your name affect your credit score. Every time the thief applied for a new line of credit, the lender preformed what’s called a credit inquiry. This inquiry drops your credit score by a few points each time it’s performed. Then, since someone has been racking up debt using your name because they have no intention of repaying it, the accounts will go into delinquency and later collection. If this has been going on for a long time before you realized your identity had been compromised, and depending on how long it takes you to take action, your credit score could have already plummeted substantially.

What you can do:

Set up a fraud alert immediately. Contact consumer reporting agencies TransUnion, Equifax or Experian and notify them that you are the victim of identity theft. Once you contact one of them, they are required to contact the other two. Watch for confirmation notices from all three agencies that they received your alert.

There are two types of fraud alert: initial and extended. An initial alert goes on your credit report for 90 days, and potential creditors must use “reasonable policies and procedures” to verify your identity before giving you a line of credit. This is primarily used when your wallet has been stolen, or you just fell victim to a phishing scam. An extended alert lasts for up to seven years. An extended alert requires a potential creditor to contact you over the phone or meet you in person.

In both cases you are entitled to a free credit report from the three nationwide consumer reporting companies listed above. Review the reports carefully. Look for any irregularities, such as accounts you didn’t open, debts you can’t explain or inquiries from companies you never contacted. Once you’ve identified all the cases of fraud, file an Identity Theft Report, which is a police report that includes details about the crime for credit reporting companies and businesses involved so that they can verify that you are in fact a victim – as well as informing them which accounts and information came from identity theft. A normal police report doesn’t provide enough sufficient information in this circumstance. Also close all the fraudulent accounts, and any real accounts of yours that may have been tampered with. You can also file a complaint with the Federal Trade Commission. A formal complaint with the FTC along with a police report will suffice as an Identity Theft Report.

Many states have also put consumer protection laws in place, which allow you an extra safety net when you are the victim of unfair or fraudulent business practices. While some states have adopted the Uniform Deceptive Trade Practices Act, others have their own deceptive trade practices statutes. These state laws are called Unfair and Deceptive Acts and Practices laws, or UDAP statutes. What constitutes deceptive practices in your state can vary, so find out what laws your state has in place.

NerdWallet Recommendations

Fraud alerts and consumer protection laws exist to provide a remedy for fraud after the fact, but it’s best to be vigilant and prevent identity theft before it happens. Restoring your credit report after your identity has been stolen is an uphill battle and can take years to recover from.

The best course of action is to follow the three D’s recommended by the FTC:

DETER: Never give personal information to people who contact you over the phone or via e-mail. If they claim to be from an institution that you use, tell them you will call them back and talk with a representative then. Also shred any documents containing your social security number, account numbers, and even addresses and birth dates.

DETECT: Check your credit report. You are entitled to one free credit report from the three consumer reporting companies every 12 months. It is important to look at this every year so that you can catch irregularities before they get out of hand. Monitoring your credit score is a crucial step to limiting future damage. Once you have received your report for the year, create a calendar event to remind you when it’s time next year.

DEFEND: Once fraud becomes evident or you believe that you’ve made yourself vulnerable to it, take action. Set up a fraud alert, and file reports with the FTC as well as local law enforcement.

Other Expert Opinions

Karen Carlson, Director of Education, InCharge Debt Solutions, had this to say about the importance of monitoring your credit score: 

“Criminals gain access to our personal information through security breaches at retailers, financial institutions and other major companies. What we can do, however, is keep close tabs on our credit history. The sooner you catch credit opened in your name, the easier it is to ‘clean up’ your identity. We recommend that people download a copy of their credit report every four months. You can do this for free at Download from a different bureau each time.”

Neal O’Farrell, executive director of The Identity Theft Council, says that remedies for the victims of identity theft are not evolving quickly enough:

“There’s not enough happening on the legal side. For example, we’ve been calling for the creation of a national registry of compromised Social Security Numbers. Victims could have their SSN registered there, and any applications for credit, employment, tax refunds, etc., could be passed through the registry for any red flags. It could severely reduce the number of crimes and victims, and save billions of dollars every year. It would pay for itself quickly.”

Michael Yankunas, CPA/CFF, CFE and partner in forensic services at accounting firm Wipfli, had this to say:

“The biggest mistake people make is thinking that this only happens to other people.  Identity theft is a threat to everyone.  Complacency and trust are the leading reasons people fail to protect their personal identity information.  In a recent survey of identity theft victims, over 50% said they knew the person who stole their identity. The trust factor in most relationships allows this type of crime to occur, especially among family members and friends.”

Denis Kelly, CEO of, has this advice for identity theft victims: 

“The moment you discover you are a victim of identity theft, you are on the clock. If a victim delays, then a bad situation becomes needlessly much worse. Another mistake is when victims allow anger to enter into the recovery process. It is already a bad situation, but it is wasted energy and leads to further pain if you don’t approach the recovery process with a level head.”