Attacks on your credit don't always come from online hackers or strangers lurking in the shadows behind an ATM. What happens when your credit is harmed by your own family and friends? Or even your employer?
While data breaches are the most common risk, Javelin Strategy & Research data reports that in 2014, 550,000 victims of fraud and identity theft had their credit compromised by someone they knew.
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Here are a few of the most common ways that other people can affect your credit score, along with some ways to protect yourself.
1. When you're an authorized user on someone else's credit card
You may think that being added as an authorized user places all the responsibility on the primary cardholder, but in fact, your authorized-user status will also be reported to credit bureaus. While you aren't primarily responsible for repaying the debt, all activity associated with the account will show up on your credit report.
This is why becoming an authorized user is sometimes recommended as a way to build credit. If the primary cardholder users the credit card responsibly, you'll likely see an increase in your credit score. However, if they're making late payments or using a big portion of their available credit, you will probably see your credit score go down.
In rare instances, employers may even add employees as authorized users on their personal credit cards instead of opening a business credit card. While a business credit card will not impact your credit, being added to your employer's personal card will, and it's not recommended.
You can protect your credit score by becoming an authorized user only on accounts owned by people who are financially responsible. Never agree to take on credit liability for a job, and only accept business credit cards that will not affect your credit. If you find your authorized user status is damaging your credit, then you can call the credit card company and have yourself removed.
2. When you have a joint checking account
While your checking account does not have a direct effect on your credit score, unpaid overdraft fees and late penalties that are sent to collections will affect your credit score. In the case of a joint account, both parties will be affected.
One owner of a joint checking account tried to close the account after splitting up with her partner but found out several years later that his portion of the checking account was never closed and continued to affect her credit even after he'd passed away. Because he'd left overdraft fees unpaid until they were sent to collections, she saw a drop in her credit score and was responsible for paying off the collections bill.
Only open joint accounts with people you trust. If you decide to close the account, make sure you go to the bank with the other account holder and close the account together. Some banks will only close joint checking accounts if both parties are present.
3. When you co-sign on a lease or loan
As a co-signer, you share full responsibility for any payments owed. This is a precarious situation to be in, as the loan appears on your credit report, and you're liable to pay off the debt if the borrower cannot. Even co-signing a lease could drag your score down if the renter fails to pay their rent on time.
You may see an initial drop in your score, as your credit utilization ratio and overall debt will increase. It's possible to see an increase in your credit score over time if the borrower repays their loan on time, especially if you don't have an extensive credit history. However, if the borrower makes late payments or defaults on their loan, your credit score will be affected as if it were your own loan. What's more, you may not even be notified if the borrower stops repaying their loan.
Do not co-sign anything if you already have significant debt or plan to finance a major purchase in the next year. Remember that the decision to co-sign a loan should not be taken lightly. Make sure you're prepared to take on the debt liability if the borrower cannot repay the loan.
4. When others create accounts under your name
It's not uncommon for people who have delinquent accounts to open new ones in a family member's name, often without their knowledge. Sadly, they may even take advantage of minors, as credit checks do not verify age. All someone needs to open an account in your name is your Social Security number.
This can happen with credit card, cable, utilities, and cellphone accounts, to name a few. Late payments and delinquent accounts under your name can destroy your credit, and you may even end up with debt collectors coming after you for unpaid bills and penalty fees.
Protect your credit score by never allowing another person to open up accounts under your name. If you find accounts opened under your name without your permission, this is identity theft. Place security freezes with each credit reporting agency (Equifax, Experian, and TransUnion), report the theft to the Federal Trade Commission, and immediately file a police report.
5. When someone makes an unauthorized credit inquiry
When a lender checks your credit score, it's considered a "hard inquiry," and it will cause a small, temporary decrease in your credit score. Too many hard inquiries in a short period of time can result in a more substantial dent.
If you find that credit inquiries you never made are showing up on your credit report, then they may be unauthorized and can be disputed.
Be wary of retail stores and car dealerships, as both are known to talk customers into applying for credit in order to reach sales goals. Retailers will often ask you at checkout if you'd like to apply for their store credit card, and though the employee may tell you that your application will not result in a hard inquiry, it likely will. There have even been accounts of employees signing customers up for credit cards without their permission. Likewise, a number of customers shopping for cars have reported that car dealerships often run credit checks without permission, so stay vigilant.
Avoid unauthorized inquiries by refusing to hand over your Social Security number or agree to a credit check you don't need. If you were misled but still submitted an application with your Social Security number and name, it will be hard to get an inquiry removed. If you find an unauthorized credit inquiry on your credit report, you can dispute it with both the lender and the three major credit bureaus.
It's important to take your credit seriously and never share financial liability with someone unless you're certain you can trust them. If you find your credit compromised due to fraud or identity theft, take action immediately. Be vigilant about monitoring all of your accounts and your credit report so that you can catch any problems early on.
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