The Cost of Identity Theft: A Real-life Example

By Joseph Reinke, CFA, Founder of FitBUX

Over the past few months, we’ve seen more and more graduates looking to refinance their student loans, apply for a home loan, or try to purchase a car only to find out they have been a victim of identity theft.

Students are the perfect target because they often times do not use their credit while pursuing their degrees which means most do not check it. However, if you are a victim of identity theft, it may cost you a lot in the future because it can really hurt your credit.

This article details ways identity theft can cost you in the future, how to check your credit, and how to remedy the situation if you are a victim of identity theft.

How Identity Theft Can Cost You In The Future

We often see a student or recent grad have their identity stolen, have charges put on credit cards or a personal loan taken out in their name. If they are not on top of this, they may end up in default without realizing it. Not surprisingly, this will destroy their credit and associated credit score.

Because of this, when they try to get a car loan post-graduation, a mortgage or refinance their student loans, they either have to pay a high-interest rate or they get denied completely.

Let’s put numbers behind this with an example. Assuming a student loan balance of $70,000 at a fixed interest rate of 6.8%, the total cost of the loan over 10 years would be $96,667.

One of our refinance partners is currently offering a 4.37% rate for those with a good credit score. If you refinanced the loan above with those terms, you would pay $86,500 over the ten years.

So, if someone stole your identity and started “hitting” your credit with extra loans and so on, your credit score would decrease and you would no longer be able to refinance with these terms, if at all. In other words, this stolen identify could cost you an extra $10,167…and this is only taking into account $70,000 in student debt.

We recently had a Member who had his identity stolen while in school and recently graduated. He needed to buy a car to commute to his new job and applied for a car loan. Since his credit score was low his car loan was at 18%....a normal car loan with good credit should be below 5%.

How To Check Your Credit

Good news…It's free. You can go to sites like creditkarma.com or you can get your credit report straight from the credit companies (there are three nationwide credit companies: Experian, Transunion, and Equifax).

By law, you can order one credit report per 12 months from each of the credit companies. To do so, you can visit annualcreditreport.com, call 1-877-322-8228, or mail the Annual Credit Report Request Form.

Many credit card companies, such as Discover or American Express, now give you access to your monthly credit score as well. So does companies like Lifelock.

How Too Correct Mistakes If You Are A Victim Of Identity Theft

Under the Fair Credit Reporting Act, both the credit reporting company and the information provider for a given item on your credit report are responsible for correcting inaccurate information on your report. To take advantage of this right, you would contact the credit reporting company first.

Contact the credit reporting company in writing. Your letter should clearly identify each item in your report you dispute, state the facts and explain why you dispute the information and request that it be removed or corrected.

Send your letter by certified mail, “return receipt requested,” so you can document what the credit reporting company received.

Credit reporting companies must investigate the items in question which usually happens within 30 days unless they consider your dispute frivolous. They also must forward all the relevant data you provide about the inaccuracy to the organization that provided the information. If the information provider finds the disputed information is inaccurate, it must notify all three nationwide credit reporting companies so they can correct the information in your file on your behalf.

When the investigation is complete, the credit reporting company must give you the results in writing and a free copy of your report if the dispute results in a change.

Upon your request, the credit reporting company must send notices of any corrections to anyone who received your report in the past six months. In addition, you can have a corrected copy of your report sent to anyone who received a copy during the past two years for employment purposes.

 

 

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