What effect does identity theft have on an individual’s credit score?

When an individual experiences identity theft, it often leads to significant drops in their credit score. This occurs because the identity thief can open new accounts in the victim's name or accumulate debts using their personal information. These activities can result in missed payments, increased credit utilization, or defaults on loans, all of which negatively impact credit scores. The severity of the damage to the credit report depends on how the stolen identity is used; for instance, multiple new accounts or high balances can particularly harm the credit score.

Subsequently, the victim may also face challenges when trying to obtain loans or credit in the future, as lenders rely on credit scores to assess risk. Therefore, the destructive impact on an individual's credit score is a critical consequence of identity theft that necessitates urgent corrective actions, such as monitoring financial accounts and reporting fraud to credit bureaus. Understanding this relationship highlights the importance of identity theft prevention and recovery strategies.