Credit Advice

Adding a fraud alert does not hurt credit scores

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Credit Advice

Adding a fraud alert does not hurt credit scores

Dear Experian,

Does adding a security alert raise your credit score or affect it in any way?

- WCB

Dear WCB,

Adding a fraud security alert will not affect credit scores in any way. However, doing so may delay the application process from reaching the risk scoring stage.

When a lender receives a credit report with a fraud alert, the Fair and Accurate Credit Transactions Act (FACT Act) requires certain actions by the lender. Basically, the lender must take reasonable steps to verify your identity and, in the case of an extended alert, must contact you. As a result, many lenders have set up their automated application processing systems to refer a report with a fraud alert for manual processing.

If a manual review process is possible, the lender may attempt to contact you and may request additional identifying documentation to verify you are who you claim to be. That could slow the lending process, but should not prevent it from being completed.

However, a manual review process is not possible in many situations. Buying a cellular telephone and applying for instant credit at a retail store are examples where the approval occurs at the point of sale. Sales clerks are not typically in a position to perform identity checks and override the credit review system.

When there is no way for a manual review process to be conducted, it is our understanding that the lender or store may initially delay the application, rather than put you and the company at risk of fraud. In those instances, you may be asked to call the central credit office or you might receive correspondence that provides instructions for submitting a written application along with identifying documentation so that your application can be processed in the credit department. In that case, the approval process is delayed before a credit score is reviewed. For victims of identity theft, the security is worth any inconvenience. 

Note that the bank regulatory agencies have reminded banks that they cannot automatically decline a credit application merely because the applicant has a fraud alert on their credit report. “Instant credit” scenarios clearly present a challenge in this regard.

If you are a fraud victim and have added a security alert or victim statement to your history, understand that there may be a delay in processing your application or request for service. If the automated approval process cannot be conducted, ask the store clerk how your application will be processed.

Thanks for asking.

- The "Ask Experian" team

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