How Identity Theft Affects Your Credit Score

Identity theft occurs when an individual unlawfully uses your personal or financial information—such as your name, PAN, address, or bank details—to engage in fraudulent activities under your identity. They may open new credit lines, apply for loans, or make purchases using your identity, leaving you to deal with the mess afterwards.

Often, a thief may acquire your data through phishing emails, data breaches, stolen documents, or insecure online practices. Once a thief assumes your identity, the damage may reflect in your credit history—such as accounts you did not open, missed payments under your name, or loans you were unaware of.

You may not realise your identity was stolen until your credit report shows suspicious entries or lenders reject good applications. The longer the theft goes unchecked, the deeper the impact on your financial reputation.

The impact of identity theft on your credit score can harm your credit profile in many ways, often before you even notice the problem:

Missed or Late Payments

Fraudsters often fail to make payments on time, leading to missed or delayed payments that quickly lower your credit score.

High Credit Utilisation

When criminals max out your credit cards or loans, your credit utilisation ratio rises, signalling risky financial behaviour to lenders.

Unauthorised Accounts

Fraudulent accounts opened in your name add debt and create a false record of borrowing that you never approved.

Increased Hard Inquiries

Each fake loan or credit card application triggers a hard inquiry, slightly reducing your score with every attempt.

Damaged Payment History

Missed or unpaid fraudulent debts appear in your credit report, harming your otherwise positive repayment record.

Reduced Creditworthiness

A lower credit score can make it harder to get new loans, credit cards, or even rental approvals from landlords.

Long-term Recovery Time

Correcting false entries and restoring your credit score often takes months, delaying financial progress.

Default Status on Fraudulent Loans

If fraudsters take large loans in your name and fail to repay them, the accounts may be marked as default, deeply impacting your score.

Reduced Average Credit Age

Fake new accounts shorten the overall age of your credit history, which can slightly lower your score.

Collections and Legal Action

Unpaid fraudulent debts may be sent to collections or result in legal notices, creating more negative marks on your report.

Difficulty in Getting Future Credit Increases

Banks may hesitate to raise your credit limit or approve new credit lines due to the history of irregular activity.

Emotional and Financial Stress

The stress of dealing with fraud can lead to missed legitimate payments, indirectly worsening your credit score over time.

Here is what you should do if identity theft has affected your CIBIL score:

1. Contact your bank or lender immediately to report the fraudulent activity and request that the affected account be frozen

2. Inform the credit bureaus to have your credit report frozen, preventing any new credit inquiries or accounts from being opened in your name during the investigation

3. Inform CIBIL and other credit bureaus about the issue so they can begin reviewing and flagging your report for fraud

4. File a First Information Report (FIR) with the local police to create an official record of the identity theft

5. Collect all supporting documents, such as bank statements or messages, that prove the transactions were not authorised by you

6. Submit a written dispute to CIBIL with copies of your FIR, ID proof, and relevant documents requesting correction of your report

7. Follow up with your lender to ensure the disputed entries are investigated and removed from your credit record

8. Regularly check your CIBIL report for updates to confirm that all fraudulent information has been deleted

9. Change your online banking passwords and enable two-factor authentication to prevent future misuse

10. Inform any other financial institutions you deal with so they can monitor for suspicious activity

11. Continue reviewing your credit reports at least once every few months to ensure no new fraudulent accounts appear

Identity theft can harm your financial reputation and restrict future credit opportunities. When identity theft affects your credit score, its impact can last long after the fraud occurs. Staying alert, checking your CIBIL report often, and acting quickly when you notice unusual activity help protect your financial health. Freezing affected accounts, filing a police report, and securing your personal information are key steps to recovery. Ultimately, awareness and responsible financial habits remain your best defence against credit fraud.