The Surprising Way an Identity Thief Can Hurt Your Credit

A reader, Audrey, had her wallet stolen and put fraud alerts on her credit reports. Now she’s been notified of an attempt to open a store credit card, and Audrey’s worried that the “hard inquiry” could damage her credit.

I had my wallet stolen late last week, so I set fraud alerts with all the credit bureaus. Today, I received a call asking if I had attempted to open an account with a retailer. I had not. Now I’m finding a hard inquiry on my credit report. How do I get rid of that?

First, a little background. A fraud alert lets the credit reporting agencies know that your personal data has been compromised, and that any attempt to get credit should be reported to you to verify that it was indeed you who applied. (This differs from a credit freeze, which won’t allow even you to access credit without a special code.) So Audrey has taken a smart step to protect her credit.

And she is right that a credit application can cause a drop in credit scores. It is typically a small and temporary drop, but if your card is stolen and the thief has tried to open one account, it’s likely that they may try to open others. And several small drops can add up. And yes, even fraudulent inquiries count as hard inquiries because they are used for the purpose of extending credit.

The good news is she can dispute the fraudulent inquiries with the three major credit reporting agencies. The inquiries probably won’t be removed, but they should be suppressed so that lenders do not see them and they don’t affect Audrey’s score. It will be important to dispute it with all three credit bureaus, because they do not share information.

She can and should pull her free annual credit reports. Assuming she reported the theft of her wallet to police, she may be entitled to additional, more frequent, free credit reports. The reports can seem intimidating to read, but learning to interpret them really isn’t terribly difficult. In addition, she can get two of her credit scores for free every month at Credit.com. It’s a good practice to check those regularly, because a large, unexplained change could be a sign of identity theft.

Audrey’s biggest problem is that her personal information is now in the hands of a thief. And because credit card issuers typically require a Social Security number, it’s reasonable to assume that the wallet thief now has access to the master key that unlocks much of her personal data. If she had insurance cards in her wallet, it would be smart to notify her health and auto insurer as well.