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Understanding how FICO score works


Have you heard of a FICO score? This is the score that the major credit bureaus give you based upon numerous criteria that allows lenders to see how well you do at repaying your debts. However, what can identity theft do to your credit score? It can ruin you in a very short period of time.

To prove the case in point, as much as 35% of your FICO score is determined based upon your payment history. This means that if your identity is stolen and someone is racking up credit in your name without paying the bill each time a payment is missed your credit score is taking a hit. This can reduce your score dramatically over just a few short months with missed or late payments. In the case of identity theft you are typically dealing with missed payments which hurts even more than a late payment does.

Another major hit you can take is 10% of your FICO score is dependant upon new credit that is opened. If you are the victim of identity theft you have likely had at least one if not several new accounts opened, these accounts can really hurt your score because they are all new forms of credit that have been opened. By themselves, this typically does not hurt your FICO score that much, but when added up with the 35% chuck for payment history you can see how this can really hurt you quite quickly.

Your next problem is in the amounts owed. If you are the victim of identity theft then you likely have had a new account opened, which is most likely also maxed out. This means that you owe a huge amount of money suddenly that you are unaware of. This can really reduce your credit score very quickly because the amount owed on your credit file is as much as 30% of your FICO score. Add to this the 35% for payment history and 10% for new credit and you are looking at a whopping 75% of your credit score that is at jeopardy based upon identity theft alone.

The next major blow is to your length of credit history. As new accounts are opened, the average life of your credit file changes to accommodate these new accounts. This can change your score by as much as 15%, which means added up with the other 75% already at risk you are looking at a 90% impact to your credit score for the worse. Imagine how quickly identity theft can leave your credit report and score in shambles and suddenly protecting yourself from identity theft is very important.

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