Your options aren’t pretty when a relative gets plastic in your name

Dear Credit Guy,
A family member activated an offer for a preapproved credit card from our home phone in my name and accrued more than $3,000 in online and store purchases. The company refused to accept my explanation that I did not open the account nor did I make the transactions. They said it is more likely a family member, and if I don’t want to accept responsibility, I should get a police report, which is very hard for me to do since it’s a family member. If I pay the balance in full, how much impact will it have on my credit? How can I correct the damage done on my credit? I had excellent credit. Your advice is very much appreciated. — Cindy

Dear Cindy,
Identity theft by a family member is very troubling and comes with some hard decisions. As you learned from the creditor, if you want to claim no responsibility for the debt, then you must report the incident of the account being fraudulently opened in your name to the police. When a family member is an identity thief, rather than a stranger, deciding to reporting it to the authorities as theft becomes much more difficult.

Alternative No. 1: Pay it yourself

It sounds like you are leaning toward not reporting your family member. If that is the case, then you need to do several things. First on the list is to close the account, if it has not already been closed by the creditor. If you have not already done so, go to annualcreditreport.com and get copies of your credit reports from each of the three major bureaus. The account may already be listed as “closed by creditor,” but if not, call the creditor at the contact information listed on your report and request that the account be closed.

Next, decide the best way for you to handle paying the balance due. You will want to avoid putting yourself in a financial bind, and I would hate for you to use up a good portion of your savings cushion to pay off this debt. You might consider an affordable monthly payment if you don’t have enough cash on hand to make payment in full.

Then, contact the creditor and explain that you are planning to make good on the obligation and tell them your plan to pay off the balance. If the creditor is not willing to accept your payment plan, contact a reputable nonprofit credit counseling agency (such as a member of the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling) for assistance. Your counselor can negotiate with the creditor on your behalf. Even if the creditor pushes, do not agree to more than you can afford to pay each month.

Alternative No. 2: File police report
Should you decide you do want to file a police report so that you don’t have to pay for items you didn’t purchase, I recommend letting your family member know ahead of time that you have made the decision to file. It will likely be an uncomfortable discussion, but it could turn into a positive. To avoid dealing with the police, your family member may opt to pay what he or she owes. Whether or not you decide to involve the police, I would give this family member the opportunity to pay up.

As far as your credit is concerned, unless you file a police report, the item will remain on your credit report for seven years from the first date of delinquency. Paying the balance due will help with potential creditors (creditors are looking to see if you met the obligation, even if you did so late), but will not have an immediate positive affect on your credit score. You have the option of including a 100-word statement on your credit report in which you can explain that the account was identity theft by a family member and you chose not to file a police report.

As long as you continue to manage your credit in the positive way you did before the theft, your credit will gradually increase over the next two years and you will soon be back in the same good credit score range you were before the theft.

Take care of your credit!

See related: When family members ruin your credit, When a family member steals your identity, 8 steps to picking a credit counselor, How to add a 100-word written statement on your credit report, Glossary of common credit card terms