How Identity Theft Can Affect Your Financial Stability

29 February 2016

When an identity thief is able to successfully assume your identity, not only can it wreak havoc on your life, but it can also do significant damage to your financial stability.

With unauthorized access to your accounts, identity thieves often open new lines of credit in your name, racking up substantial debt that they neglect to pay for. The jump in debt-to-income ratio and sudden smattering of missed payments can erase years of responsible borrowing behaviour, causing your credit score to plummet.

Your credit score is like your financial foundation — while your existing accounts may still function on the surface, it becomes near impossible to build further on a weak foundation. Without a healthy credit score, your independence could be crippled. Here’s how your low score could affect your financial stability:

  • Interest rates: Whether you’re applying for a car loan, a mortgage or just a new credit card, having a low credit score could mean you are only offered terms with high interest rates. This is because, according to your borrowing history (fraudulent or not), you represent a higher risk to the lender. Considering that most Canadians have several lines of credit open in their name, what might seem at first like relatively small increases in interest will quickly add up across accounts, perhaps forcing you to borrow more or making it difficult to make your payments on time, which can push your credit score even lower.
  • Loan applications: If lenders decide your low credit score indicates you are enough of a credit risk, they may deny your credit application altogether. This can be especially troublesome for people looking to finance the purchase of a car or house. This can also be an obstacle as you try to build back your credit, as the best way to do so is to manage a few lines of credit responsibly.
  • Rentals: Landlords or rental companies can check your credit history to determine the risk you pose to their assets. Therefore, even if you’re not ready to buy a home or car of your own just yet, your low credit score can also make it difficult to rent an apartment or vehicle in your name.
  • Starting a business: Many small businesses are initially funded by small business loans. If you have a low credit score due to identity theft, the bank may choose to not extend you the loan you would need to get your business off the ground.
  • Insurance premiums: Claiming low credit scores are linked to frequent claims, insurance companies also reserve the right to check your credit. As a result, your low credit score could drive up the cost of your insurance, even if your history suggests you rarely file claims.
  • Employment: Upon receiving your application for a new job, potential employers may request your permission to view your credit file. You are under no obligation to say yes, but if you do, the company may take your credit score into consideration when making its hiring decision, especially for positions in finance or upper management.

Considering the impact a poor credit score can have on your financial stability, identity theft protection is about far more than maintaining your good name or keeping your cool. For help monitoring your credit file or how certain personal information is shared online, consider signing up for a credit monitoring service. It can issue notifications if it detects certain activity that may indicate fraud or ID theft, empowering you to take steps to stop the thief.