Nov 03, 2020 MicroBilt News
In 2019, there were 1.7 million instances of identity theft fraud in the United States costing consumers nearly $1.9 billion, according to Insurance Information Institute. Those numbers are expected to increase dramatically for 2020 thanks, in large part, to the COVID-19 pandemic, widespread unemployment, and nationwide lockdowns.
The financial costs and sense of violation that go along with identity theft can be profound for consumers. The damage identity theft does to their credit scores, however, can linger for years to come. Here’s what lenders need to understand about consumer credit scores and identity theft.
What Do Credit Scores Really Reveal about Consumers?
For the most part, credit scores are numbers indicating how likely certain agencies believe specific consumers are to repay their debts based on five critical factors.
- History of payments on past consumer credit accounts.
- The total amount of debt consumers owe to creditors.
- New credit accounts applied for or opened recently.
- How long they’ve been using credit.
- The different types of credit (revolving credit, installment loans, etc.) consumers have.
When identity theft occurs, these numbers fall woefully out of balance and can plummet quickly leaving unaware consumers with dismal credit scores before they even realize they are identity theft victims. It can be especially devastating for available credit ratios as thieves seek to do as much damage as possible before their crimes are discovered, they reach the account limits, or accounts are closed.
Unfortunately, credit scores do not reveal the big picture of consumers. It only shows a small glimpse inside through a tiny window. It reveals nothing about the income of the consumer, it doesn’t reveal the consumer’s ability to pay day-to-day debts like rent, utilities, mobile phone payments, etc. These are all important indicators that are often missing from traditional credit scores.
Credit scores also do not verify incomes, or even if the borrower has a job. They do not reveal how much cash consumers have on hand and in various accounts. It doesn’t even tell you if they have bank accounts, how long they’ve had their bank accounts or other relevant information that indicates a consumer’s likelihood to repay the money they borrow. These are all things lenders using Instant Bank Verification can easily learn about prospective borrowers.
How Does Identity Theft Damage Credit Scores?
The problem with identity theft today, especially when it comes to credit card fraud, is that most people don’t receive the bills about new credit accounts opened in their name, the late fee notices, or the debt collection notifications. They only find out when they either check their credit report or apply for credit only to discover their credit score has dropped substantially.
In fact, by opening as many credit accounts as quickly as possible, then spending like crazy until the accounts are closed for non-payment, many identity thieves are able to drive down credit scores quickly. Forbes reports that identity thieves can quickly reduce credit scores by 100 or more points. Unfortunately, it can take months or even years for consumers to repair their scores and get the credit they truly deserve.
For these reasons (and many more) credit scores do not reveal the full character of borrowers or their true intent to repay their debt. That is why it is so important for lenders to verify the identity and financial records of people before extending credit with products like Instant Bank Verification. IBV allows you to know who you are lending to, whether they can afford to repay what they hope to borrow, and even when they get paid for auto-draft possibilities for short term loan repayments.
Opportunities for Short Term Lenders
The truth of the matter is that identity theft victims are often good candidates for short term lending as they seek to rebuild their credit and often need to rely on businesses that use alternative lending data or do not rely heavily on traditional credit scores.
Instant Bank Verification is one important tool for lenders to consider. IBV can help determine a potential borrower’s ability to repay by verifying income, when consumers get paid, and other relevant information. Another option, outside of traditional credit scores, for lenders to consider is alternative credit reporting.
Alternative credit reporting combined with IBV allows you to help in the fight against identity theft first by verifying the identity of people applying for credit and not extending credit to those who do not check out or present red flags.
Additionally, it allows you to be instrumental in helping consumers recover after they’ve become identity theft victims. That is something that resonates well with consumers and opens the door to new revenue for your business.
When you prevent identity thieves from opening accounts through your business, by taking out short-term loans or opening other types of credit accounts, you’re also preventing financial blowback for your business. It isn’t only consumers that are victims when people steal identities and open credit accounts.
Instant Bank Verification has a lot to offer lenders of every type. It is especially useful, though, for lenders who specialize in the types of loans identity thieves frequently target and can prevent your business from being victimized by these thieves as surely as the consumers who have had their identities stolen.
We are dedicated to helping businesses with software solutions that protect your financial interests. MicroBilt offers a wide range of software solutions that can help your business make sound credit decisions, verify identities, screen backgrounds, and more. Contact MicroBilt today to learn more about our line of software solutions and how they can help you maximize your business.