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It's an old trick and it can cause major damage to your website's Google rankings. How does it work? Some not so friendly hacker/spammer gets access to your server and plugs in a bunch of hidden links or spyware (most of the time the links go unnoticed by the webmaster until Google drops them from their index). Sometimes the links are anchored to sites that aren't too spammy and Google won't take action because they don't know you have been hacked – still a major problem for you.

So either you notice the links and lock down your server (or move hosting companies) or Google notices the links and drops you from their index. Now what happens. Well according to Matt Cutts over at Google:

  1. The site gets classified as hacked and spammy
  2. The site gets dropped from the index and Google referrals stop coming in
  3. Google starts flagging the site as penalized in the Google’s webmaster console. * Note – if Google thinks you are intentionally spamming they will not notify.
  4. They may even start emailing the webmaster letting them know the status of their site.

What can you do to get your site back.

  1. Lock down your server, change your passwords, move ISP's etc.
  2. Remove any questionable content or spammy links.
  3. Perform a re inclusion request.

According to Google, if your site was clean and ranking well before the hack, then once you have cleaned up all the malicious code and performed a re inclusion request you should pop back into the Google index in 24-48 hours.