Credit scores are not enough to detect identity theft and in this article we will discuss why.
The White House issued a press release praising banks who are giving away free FICO and VantageScore credit scores to customers. Of course, more access to credit scores is a good thing, and banks should be encouraged to do so. Unfortunately, in a release meant to help consumers, the White House also made a suggestion that could harm them greatly.
In their praise of free credit scores, the White House suggested that they are “one of the best early indicators of identity theft”, and this couldn’t be further from the truth. While consumers should be checking their scores frequently, it’s not something that can definitely detect ID theft or fraud before it occurs.
Here are just some instances where ID theft/fraud won’t have a noticeable impact to credit scores:
A new fraudulent address being used.
Criminals frequently apply for credit using a victim’s info under false addresses. While the new address would show up on a credit report, it would have zero impact on credit scores.
Fraudulent hard inquiries (third party credit reviews) on a credit report.
What banks don’t tell you about free credit scores is that they usually only give you scores from one of the three bureaus. If a criminal applies for credit in your name, there will be a hard inquiry by the lender, which could lower a credit score and raise some red flags. However, this inquiry could show up on Experian, while the bank could be providing you with an Equifax score (which wouldn’t change at all).
Even fraudulent inquiries on a free credit score being provided by the bank are hard to notice.
Even if an inquiry occurs on a credit score your bank is giving away, or if you happen to have checked all three scores, the effect of a hard inquiry could be pretty negligible. Hard inquiries can lower scores differently for each unique credit profile. For some it could be many points and others it may not lower at all which may not point to identity theft. So a score (without the full bureau reports) may not reflect hard inquiries.
Late payments due to fraudulent activity.
When criminals start making fraudulent charges and don’t pay, this could actually do some serious damage to your scores. Unfortunately, it will already be too late when this damage shows up. At best, a creditor will report a late payment 60 days after the fraudulent account is opened. But typically, late payments will take months for you to notice and to show up on a score.
So what should you do?
While credit scores freely given aren’t a good indicator of identity theft, a good credit monitoring product will tell you when any of the above changes happen on all three credit reports and scores, along with others that could indicate criminal activity. Some even include credit blocking (which prevents any inquiries without approval) or fraud alerts (which require approval for any new credit being opened).