“It won’t happen to me.”
You’ve probably had that thought before. You’re careful with your bank account information and you protect your Social Security number, so you’re covered, right?
The reality is that our personal information is everywhere, and people we don’t want to access it, can. Accounts such as credit cards could be opened by a stranger or even by your bank without your permission. We look at how this type of financial fraud can impact your credit score and how you can protect your financial well-being.
Unauthorized Accounts Can Impact Your Credit
Your Credit Utilization Ratio
A new account will always lower your credit score in the short term. With a higher availability of credit, you will be deemed more of a risk that you may not be able to pay all your debts off. With timely payments, your credit score will increase as you prove you can and will continue to pay off debt.
A new credit card can lower your score in the short term because of this, but also because the credit card company will pull your credit report. Lenders pull credit reports before they decide to extend credit, and this hard inquiry can negatively impact your score.
Getting additional credit while maintaining your current levels of spending will decrease your credit utilization – defined as your total open balances divided by your total credit limits. This is one of the most influential factors in determining your credit score. With timely payments and continued low utilization, your score will increase in the long run.
Note that closing a credit card with a low balance that you have made timely payments on will raise your credit utilization ratio, which can have a negative impact on your credit score.
Some credit cards have fees associated with them. If the credit card issued in your name has fees that weren’t paid, these missed payments could negatively impact your score.
Your Credit Impacts Many Aspects of Your Life
Lenders, insurance companies, landlords and even employers have the ability to look at your credit report to determine if they want to do business with you. Are you considering getting a mortgage or an auto loan? What about applying for a new job? If so, read on. Your credit influences more than you may think.
Qualifying for a Loan
Before lending you money, lenders look at your credit report to see if you’ve paid your debts in the past. If you have a lower credit score and have had issues paying before, lenders may view you as a high-risk borrower. This means you may not be approved for your loan, and if you are, your rates and fees will be higher than a low-risk borrower.
This applies to mortgages, credit cards, student loans, auto loans and even cell phone providers. Most lenders require a credit check prior to doing business with you.
Your credit influences the interest rate on your loans. Lenders want to make sure they’ll be paid back in full, so they’ll give you an interest rate that reflects the amount of risk you might pose. With a low credit score, the lender is taking on more risk that you may default. Therefore, you may get a higher interest rate.
While a 0.1% or 0.3% difference in interest rates may seem like a small amount, it can equate to thousands of dollars over the course of your loan.
Auto Insurance Premiums
Your credit history is factored into the premium you pay for auto insurance. A study by the Federal Trade Commission found that credit scores could help to predict risk. Those with higher credit scores tend to get into fewer auto accidents and have fewer insurance claims, costing insurance companies less money. Those with lower scores tend to pose a higher risk and may have to pay higher premiums to compensate.
Employers can legally request your credit report as part of your background check and often will look at that before they extend a job offer to you. They use your report to verify your personal information and to see if you have any negative public accounts or red flags.
Employers want to weed out the people who have made several poor choices (like continuing to spend more than they can afford). They also want to ensure they aren’t putting irresponsible individuals in positions where they may be tempted to steal money from the company or compromise private client information.
How Can I Prevent This?
Often people don’t know unauthorized accounts have been opened in their name until their score has been affected. Stay up to date on your credit report so you can address situations like this as soon as possible.
Make sure your financial well-being is in your hands, not someone else’s. Visit Rocket HQ to see your complete credit report free of charge and view all of your credit cards, loans and minimum payments in one convenient place. If you find something that doesn’t look right, Rocket HQ offers the tools you need to dispute them immediately. The company also provides credit monitoring and will alert you if and when a credit card is opened in your name.
Prevent your financial well-being from falling into the wrong hands by creating a Rocket HQ account today.
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