How Does a Credit Score Relate to Fraud Protection?

Credit fraud is rampant as thieves steal account numbers and identities by "skimming" credit cards at businesses, through malicious software installed on computers, bogus email messages and website or various other means. This endangers your credit score because fraudulent activity can hurt it badly unless you take steps to protect yourself.

Definition

Fraud protection is a service in which a credit bureau or private company monitors your credit reports. You are notified of any activity that might indicate fraud, such as inquiries and new accounts that could be the work of an identity thief. You can also do your own fraud protection by getting one of your credit reports through annualcreditreport.com regularly to do your own search for strange entries and carefully scrutinizing your credit reports every month. Three credit bureaus and the Fair Credit Reporting Act make them each available every 12 months at no charge, so ordering one every four months will cover you for the year.

Factors

Your credit score is based on the information in your credit reports. Your score is high if you pay your bills on time and manage your accounts responsibly, keeping your credit limits reasonable and not maxing out your balances, credit score provider FICO states.

Relationship

An identity thief may commit fraud by making charges on your current cards or opening new accounts in your name and spending as much money as possible without making any payments. Your credit score will plummet as your spending appears to rise or you have delinquent payments appearing in your name without your knowledge. A commercial fraud protection service helps you catch the problem early so you can minimize the damage. This is also true if you are diligently monitoring your credit yourself.

Solution

Report any suspicious activity to your credit card company as soon as you notice it on your statement, the Federal Trade Commission advises. They will close your account and issue a new number to stop any additional charges. They will also credit you for the fraudulent purchases. Put a fraud alert on your credit reports if you find accounts you did not open. This can be done through the Equifax, Experian and TransUnion websites or by calling the bureaus. Contact the involved banks or card issuers to alert them of the problem and ask them to stop reporting the accounts on your reports. The fraudulent accounts will stop affecting your credit score when they are removed.

Alternative

Purchased fraud protection can cost up to $180 per year, according to "Consumer Reports" magazine. Consumer advocate Clark Howard explains there is a lower cost option that offers more protection for your credit score. You can put a freeze on your credit with each of the three bureaus. This costs a few dollars in some states, while it is free in others. No one can open an account in your name, including you, unless you temporarily unfreeze your credit with a password or code. This virtually eliminates fraud and helps keep your credit score high as long as you are financially responsible.