Financial Consequences of Severe Identity Theft in the U.S

Abstract

We examine how a negative shock from severe identity theft affects consumer credit market behavior in the United States. We show that the immediate effects of severe identity theft on credit files are typically negative, small, and transitory. After those immediate effects fade, identity theft victims experience persistent increases in credit scores and declines in reported delinquencies, with a significant proportion of affected consumers transitioning from subprime-to-prime credit scores. Those consumers take advantage of their improved creditworthiness to obtain additional credit, including auto loans and mortgages. Despite having larger balances, these individuals default on their loans less than they did prior to the identity theft incident.

Keywords: identity theft, fraud alert, consumer credit, credit performance, limited attention, inattention

JEL Classification: G5, D14, D18