Credit Checks & Identity Theft

Identity thieves use your personal identification to impersonate you in various financially damaging ways. They do everything from opening credit accounts to obtaining identifying documents in your name to using your Social Security number for employment. Credit checks can tip you off when someone has stolen your information. You can then prevent future credit checks for fraudulent accounts.

Definition

There are two main types of credit checks. The first is done by individuals such as landlords, and by businesses such as credit card issuers and loan companies, to screen you for a business purpose. It could be part of the application process for a new apartment or credit account.

The second type of credit check is done by you. The Fair Credit Reporting Act gives you free annual access to your three credit reports from TransUnuion, Equifax and Experian, the Federal Trade Commission advises. You can review them for mistakes or simply to keep track of what information banks, loan companies and other businesses will see when you fill out applications. They must be ordered from AnnualCreditReport.com, the official federally mandated site.

Considerations

A credit report should list prescreening inquiries and credit inquiries initiated only by you through an application, and you should recognize all the current accounts. Any other activity could signal identity theft.

For example, you might see a number of inquiries by companies with whom you've never done business. You also could see credit accounts you did not open. Most likely their payment history will be delinquent because they were opened by a thief who spent as much as possible, then abandoned the account.

Effects

Identity theft hurts your credit score because anyone who does a credit check will see the fraudulent accounts. A company will think you are a poor credit risk if it sees unpaid accounts. It has no way of knowing you are totally unaware of those bills. It also might reject you for having too many inquiries on your credit history, if the criminal filled out a large number of applications trying to open as many accounts as possible.

Prevention

You can get free credit reports only once a year, but identity theft can happen at any time. The Privacy Rights Clearinghouse recommends stretching out your free reports by ordering one every four months. Immediately file a fraud alert with all three bureaus if you find something suspicious during one of your regular reviews, USA Today financial columnist Sandra Block advises.

Each bureau's website has forms and phone numbers for reporting suspected fraud. Call any unfamiliar companies that have done inquiries or opened accounts, to confirm the activity was done by an identity thief. Fill out a police report and provide those companies with copies so they do not hold you liable for any bills. Dispute the relevant accounts with the credit bureaus so they will be removed from your reports.

Solution

Consumer advice guru Clark Howard cites a credit freeze as a powerful way to prevent identity theft-related credit checks. You pay a small fee to freeze your credit with the three reporting agencies. No one can access your history to consider an application, or for any other reason, unless you give a special password or personal identification number. This effectively keeps criminals from opening new accounts in your name, because loan providers and credit card companies can't see your credit history to complete their applications. You are eligible for a free credit freeze in some states if you are already an identity theft victim.