Identity Theft Can Destroy Consumers’ Credit Ratings

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By Consumers Union on Wednesday, May 7th, 2014

Consumers are increasingly aware of the threat posed to their financial security by identity theft. Recent high-profile security breaches experienced by retailers and others have put at risk the personal information of millions of consumers.

Identity theft can wreak havoc on a consumer’s creditworthiness. This can occur when a consumer’s Social Security number (SSN) is compromised and used to open new credit accounts. According to the U.S. Department of Justice, about one million consumers had false accounts opened in their names in 2012. Many consumers find out about this fraud only after several months have elapsed.

Consumers Union’s recent policy brief, “Errors and Gotchas: How Credit Report Errors and Unreliable Credit Scores Hurt Consumers,” reveals how victims of identity theft can have a difficult time removing fraudulent accounts from their credit reports. Consumers told us that it can be a time-consuming and challenging process to have phony information deleted from a report. Sam, of Brookline, Massachusetts saw his credit rating decline significantly after he became a victim of identity theft. He explained to Consumers Union:

“Dealing with credit rating agencies can be a nightmare. Someone with access to my Social Security number opened a credit card account in my name and with his/her address (in another state where I had never lived)—and then made purchases before allowing the account to become delinquent. I learned about this fraud months later when applying for credit. A review of my credit report provided by one rating agency (Experian) made clear what had happened. I went thru all the hoops set up by the agency to correct my report—even tracking down the names of the people responsible for the fraud. I obtained a letter from the bank that had issued the fraudulently-obtained card, indicating that I had never been issued a credit card by the bank, and I filed a police report. Months later, the agency corrected my report. When I provided the same information to the other two major rating agencies (Equifax and Transunion)—including the corrected report from Experian and other documentation—each said it had to independently verify my case. It took months more to have all three reports corrected—during which time I was denied credit twice and my credit score (over 800) fell by more than 200 points.”

That’s why it’s so important for Congress to take action to help identity theft victims quickly recover their good credit. Recently-introduced federal legislation, the Stop Errors in Credit Use and Reporting (SECURE) Act, would help consumers, including victims of identity theft, who find inaccurate information on their credit reports. In particular, the law would instruct the Consumer Financial Protection Bureau (CFPB) to consider strengthening the matching requirements that the credit bureaus use to put together credit reports, and to adopt stricter rules that each credit bureau must follow to guarantee the accuracy of credit reports. Finally, the law would help consumers get a more complete and accurate information about their creditworthiness by giving all consumers the right to a free credit score each year when they obtain their annual credit reports. If enacted, the bill would entitle consumers to the scores used by lenders instead of the “educational” scores credit reporting agencies typically sell.

Please join us in supporting the SECURE Act to address the problem of credit report errors that result from identity theft. You can also help Consumers Union by sharing your credit reporting story. For more advice on protecting yourself from identity theft and fixing credit reporting errors, please see Consumers Union’s tips.

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