Innocent Persons' Credit Can Be Crashed By Identity Theft

Identity theft encompasses a variety of crimes, from stealing someone's credit card number to opening accounts in the victim's name. About 15 percent of victims report that their identities were stolen for purposes other than obtaining credit, such as to get government documents, commit tax fraud, or mislead police. It's relatively common, for example, for someone to give a phony name and Social Security number when arrested or stopped for a traffic violation.

Thieves tend to do the most damage when they can take over your identity wholesale. By pretending to be you, they can open up credit card accounts, get an auto loan, be treated at a hospital, or rent an apartment. When the bills are due, they don't pay - and those delinquencies, charge-offs, collections, repossessions, evictions, and judgments wind up on your credit report, sending your credit score into the basement.

This kind of "new account" theft costs, on average, $10,000 per victim and makes up nearly 70 percent of the costs incurred by businesses and financial institutions. The out-of-pocket expenses for consumers tend to be higher as well - $1,200 compared to the average $500 when all types of identity theft are considered. The FTC's estimate of the time that consumers spend clearing up problems - 30 hours on average - was decried by many identity theft experts as far too low. The Identity Theft Resource Center said that many victims spend 300 to 600 hours dealing with the various problems that identity thieves cause.

Often, the biggest time-consumer is trying to get fraudulent accounts expunged from credit reports. Many victims complain they get the runaround from credit bureaus. The bureaus say the problem is lenders, who continue to report account information to the bureaus even after they've been told the accounts might be fraudulent. Either way, the ID theft victim gets squeezed.

Here are just a few of the ways your identity can be stolen:

1. You hand your credit card to a waiter in a restaurant. Out of your sight, the waiter runs the card through a small, hand-held device called a skimmer. All of the relevant information contained on your card's black magnetic strip - including your name and the account number - is stored in the device and can be used to create new cards.

2. You fill out an application for credit, an apartment, insurance, or employment. A crooked employee sells the information to a ring of identity thieves or uses it herself to open accounts.

3. Hackers break into online databases where your personal financial data is stored.

4. Thieves pretending to be legitimate lenders - or again, dishonest employees of actual lenders - obtain credit reports from the bureaus and use the information to open new accounts.

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