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Impact of identity theft on your credit worthiness - Case Study

  Tue, Dec 13, 2016     written by : CSF-Team
Identity Theft

Satish Bhatia, a small businessman in Mumbai had an impeccable credit history one year back. He had never faced any difficulty in getting loans in the past. He had two credit cards and a car loan and he always made his payments on time. He was aware of the importance of a good credit score, so he never let his debts out of control.

Since he was not very computer-savvy he never used his credit card for online purchases. He never worried about identity theft since he believed that only people who make financial transactions electronically are at such a risk. But he was wrong!

It was only when Satish applied for a personal loan and got rejected due to bad credit that he suspected that something was fishy. At the same time he began receiving calls from a collection agency inquiring about an outstanding balance on a credit card which he had never taken. Satish’s name was on the loan defaulters list and the collections agency warned him of a possible legal action if he did not clear his dues.

He immediately ordered his credit report and found that someone had opened 2 new credit cards in his name, charged a sum of Rs 2,50,000 and never paid the bills. Satish became a loan defaulter and a victim of identity theft. He informed the credit card company and asked them to freeze the account and investigate and take appropriate action. He also notified the credit bureau about the fraudulent accounts and took all necessary steps needed to get all the loan defaulter entries removed from the report. He even informed other creditors about his ID theft and asked them to report any suspicious activity that shows up on his account.

But his ordeal was not yet over. His credit score was seriously damaged and he became a risky candidate in the eyes of potential lenders. This is how an identity theft hit his credit score.

  • New credit enquiry- Every time the thief applied for a credit card in his name the lender pulled out Satish’s credit report. Such frequent credit checks dropped the credit score by a few points.
  • High credit utilization ratio- A big piece of the credit score is determined by how much debt one carries. The 2 credit cards which the thief took were maxed out. Huge outstanding balances on the credit cards affected his credit utilization ratio and the credit score plunged.
  • Delayed payment- The thief naturally was not interested in paying the money back. Since the minimum payments were not made before the due date, Satish became a loan defaulter and the credit score dropped each time a due date was missed.
  • Collection Accounts - After 4 months of non-payment of bills the credit card company had turned the unpaid debt over to a collection agency. This collection account showed up on his report and had an adverse effect on his score.

A significant dip in the credit score posed Satish as a risky borrower. Now he could only resort to personal loans for bad credit to meet his financial needs. Personal loan for low CIBIL score often comes at a high rate of interest. Satish could no longer bargain for terms and interest rates which he could get from the lender if his score was not affected by the ID theft.

Bad credit fix on the CIBIL report was a long and painful process. He had to spend months asking the bureau to remove all entries relating to credit enquiry, and subsequent fraud account usage and charge offs that had caused a dip in his credit score. He will now need to rebuild the ruined credit score before he can apply for a personal loan. Restoring the financial damage caused to his name would take several years. Till then he would have to rely on loans for CIBIL defaulters which would be too taxing on his pocket.

Satish now realized the importance of staying vigilant and checking the report at regular intervals. He setup transaction alerts with the credit card company so that he receives a text message every time a transaction takes place. He checks his credit reports more often now, to keep a check on future fraud attempts. He changes his passwords and PINs frequently and exercises caution while sharing his personal information and account numbers.

Anyone can be a victim of identity theft. Thieves have countless creative ideas to steal someone’s identity. Vigilance and precaution is the only way we can ensure that we catch the event on time and minimize the damage.