How a Data Breach Could Impact Your Credit

What Is a Data Breach?

A data breach is the unauthorized release, theft or exposure of sensitive information. Breaches can expose anything from email addresses and passwords to Social Security numbers, account credentials and medical records.

Whether caused by a sophisticated cyberattack or a simple human error, the result is the same: Your personal information ends up in the wrong hands.

Ways a Data Breach Can Harm Your Credit

A breach by itself isn't reported to the credit bureaus and won't move your credit scores. The damage shows up if criminals use the exposed information to commit fraud in your name. Here are the most common ways that can hurt your credit:

• Fraudulent accounts opened in your name: With your Social Security number and other personal details, a scammer can apply for credit cards, loans or utility accounts in your name. Once opened, these accounts can appear on your credit report and skew the picture lenders see when they evaluate you.
• Hard inquiries on your credit report: Each fraudulent credit application can trigger a hard inquiry on one or more of your credit reports, which can temporarily lower your credit scores by a few points. Hard inquiries stay on your credit report for two years.
• Missed payments on fake accounts: If fraudulent accounts go unnoticed, the unpaid balances can result in missed payments that get reported to the credit bureaus. Payment history is the most important factor in your FICO^® Score^Θ, so even one missed payment can do serious damage.
• Collection accounts: When unpaid debts from identity theft go long enough without payment, the original creditor may sell or assign the account to a collection agency. A collection account can stay on your credit report for up to seven years and significantly drag down your scores.

The combined effect of new accounts, hard inquiries, missed payments and collections can make it harder to qualify for loans, credit cards or favorable interest rates until you clear the fraudulent activity from your report.

Learn more: What Affects Your Credit Scores?

Warning Signs Your Credit May Be Affected

Identity thieves often act quietly at first, testing the waters with small transactions or opening accounts in your name before making bigger moves. But the earlier you spot the activity, the easier it is to limit the damage and clear fraudulent items from your credit report. Watch for these red flags:

• Credit card charges or bank withdrawals you don't recognize, including very small "test" transactions
• New accounts or hard inquiries on your credit report that you didn't authorize
• Bills, statements or collection notices for debts that aren't yours
• A drop in your credit score with no explanation
• Mail you expected that never arrives, or notifications about an address change you didn't request
• An IRS notice about a duplicate tax return or unreported income from an employer you've never worked for
• Denial of credit when you expected to qualify

If you notice any of these warning signs, act quickly. Reporting suspected fraud and securing your credit can keep a small problem from turning into a much bigger one.

Learn more: How to Check for Identity Theft

How to Protect Your Credit After a Data Breach

If you've been notified that your information was exposed, here are some steps you can take to safeguard your credit and minimize potential damage:

1. Read the breach notice carefully. Find out exactly what information was exposed. A leaked email address calls for a different response than an exposed Social Security number. The Federal Trade Commission (FTC) provides a data breach guide with steps based on the type of information that was leaked.
2. Check your credit reports. You can get free access to your Experian credit report anytime, and you can obtain free weekly credit reports from all three credit bureaus (Experian, TransUnion and Equifax) through AnnualCreditReport.com. Look out for anything that seems off, including new accounts, balances or creditors you don't recognize.
3. Place a fraud alert on your reports. You have a right to place a fraud alert on your credit reports to protect yourself. A fraud alert tells lenders to verify your identity before opening new credit in your name. You only need to contact one bureau to place a fraud alert, and it will notify the other two. You can get started at Experian's Fraud Alert Center.
4. Consider a credit freeze. You also have the right to request a security freeze, which restricts access to your credit report so lenders can't open new accounts in your name. Freezes are free, don't affect your credit scores and can be lifted or even thawed temporarily when you need to apply for credit.
5. Change your passwords and turn on multifactor authentication. Use a unique password for every account and prioritize password updates to financial, email and credit bureau logins. You can use a password manager to keep track of all of them. Also, take advantage of multifactor authentication to put one additional step between criminals and your financial accounts.
6. Accept any free credit monitoring offered. Breached companies often provide one or more years of free credit monitoring or identity protection. This can be a valuable tool for spotting potential issues that crop up long after the initial breach.
7. File a report if fraud occurs. If you spot identity theft, report it to the FTC to get a personalized recovery plan and an official Identity Theft Report you can use to dispute fraudulent accounts.

Tip: Make a habit of checking your credit reports at least a few times a year, even if you haven't been notified of a breach. Many breaches go undisclosed or unnoticed for months.

Frequently Asked Questions

The Bottom Line

A data breach is unsettling, but it doesn't have to wreck your credit. The credit bureaus and credit scoring models don't penalize you for being a victim of identity theft. Still, fraudulent activity can look just like legitimate activity on your credit report, so checking your report regularly is the best way to catch anything that doesn't belong and get it removed.

Acting quickly by checking your credit reports, placing a fraud alert or freeze, and monitoring your accounts, can stop most fraud before it starts. You can also enroll in free credit monitoring from Experian to get alerts when new accounts, inquiries or other changes appear on your Experian credit report.