Target Data Breach Could Affect the Dream of Homeownership

The massive data breaches at Target and Neiman Marcus continues to impact the consumer market, with industry-watchers now worrying the fallout could hamper real estate transactions via damaged credit scores.

The Target breach alone could touch up to an estimated 70 million credit and debit card customers, and Neiman Marcus says data on 1.1 million of its customers may be vulnerable to fraud. And data-security researchers say at least six other merchants also have suffered data breaches from point-of-sale malware.

Target and Neiman Marcus have offered free credit-monitoring services to affected customers, but credit experts say it’s likely many aren’t even aware their data may have been compromised.

Identity theft, if not corrected quickly, can make a mess of anyone’s credit bureau files. Victims may not be liable for the unauthorized debts racked up, but their credit reports can be damaged for months.

As a result, home sales could be knocked off track by the sudden appearance of new debts on buyers’ credit reports. Many lenders now monitor national credit bureau files electronically from the date of loan approval to moments before closing.

Even if you explain that you were a victim of identity theft, your financing could be put on ice until you and the bureaus clean up your reports. That could cause you to miss contractual deadlines with the home seller and, worst case, cause you to lose the house.

Undetected run-ups of balances on credit cards could seriously affect “utilization ratios” — how much of the available credit maximum a consumer has drawn down — and cause declines in scores. High rates of utilization or “maxing out” are penalized by the major scoring models.

Lower credit scores, in turn, may disqualify you for a mortgage, at least until you are able to document to the credit bureaus’ satisfaction that the new debts were the result of identity theft.

Credit reporting agencies that resell and reformat credit data for lenders can advise loan officers on how to improve applicants’ scores, a service known as “rapid rescoring.” But they generally don’t help repair victims’ identity theft problems.

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