Credit washing rose nearly 700% over 2 years: Transunion

While there are legitimate means to allow consumers to boost their credit scores, others – not just individuals but also industrial or institutional actors – engage in a practice known as credit washing.

The practice takes advantage of something people are allowed to do: challenge erroneous information on their credit reports.

But in credit washing, the information is accurate but is challenged anyway, taking advantage of the Fair Credit Reporting Act's requirement to investigate and correct errors. While that investigation is taking place, the information is removed from the credit report, boosting the borrower's score.

Data from Transunion covering July found a record high in charged-off accounts due to consumer-initiated disputes. Over a two-year period, these have grown by 668%, the credit bureau said. By comparison, lender-initiated charge-offs over the past three years increased by 150%.

Why have credit washing activities increased

While a cottage industry has sprung up around credit washing and certain aspects of the practice, it is now growing more and has become very formalized, said Steve Yin, global head of fraud at Transunion.

These "nefarious" activities, driven by consumer, lender, credit repair and debt settlement practices, differ from people resolving legitimate disputes on their credit reports, he noted. "They're disputing accurate information with the intent, ultimately we can make that leap of faith, to manipulate their credit access and credit scores," Yin said.

Where they do know about this, the government has acted.

Back in 2022, the Federal Trade Commission went after Alex Miller Credit Repair, later renamed Turbo Solutions, for credit washing practices; at the time Alexander Miller consented to a permanent injunction.

In this case, besides advertising it could remove all negative items, Miller's companies filed fake identity theft reports with the government.

This past March, the government moved for and received summary judgement regarding Turbo and Miller from the reopened legal proceedings.

U.S. District Court Judge Andrew Hanen ordered the defendants to pay $10 million in civil penalties and $9.358 million in consumer redress.

The Miller case started five years after a 2017 FTC policy change which made it easier in theory for ID theft victims to produce policy reports or other records and created the opening for credit washing to take hold, fraud experts said at the time.

Recent statistics on credit washing

In Transunion's new analysis of consumer initiated customer disputes, it found that roughly 5% had charged-off accounts this year for "atypical reasons," which erased $10 billion in debt from their records.

The company is bringing to market the Transunion Credit Washing Solution, which consists of three indicators: a credit washing default score; algorithms that look for tradeline washing attributes; and algorithms that calculate inquiry changes across four lines of business and six time periods.

The tools create "a yellow flag" for lenders to look at someone applying for credit like a mortgage or home equity product to take a second look at the applicant, Yin said. It is not an outright rejection of the file.

In the normal course of business, the disputed item would be blind to the lender and artificially increase the applicant's credit score. Even if the information were to be restored, it would be at least 30 days to as long as 90 days the score would be higher.

The tie between credit washing and synthetic IDs

A related problem is the creation of synthetic identities, which use a combination of real, stolen and fake information for people to apply for credit.

"The interesting thing about credit washing is that there is an interplay with synthetic identities as well," Yin added. So Transunion recently introduced a new synthetic identity score as well.

In October, it released data on credit washers in auto loans. The 3.4% charge off rate for supposed super prime (Vantagescore of 781 or higher) borrowers who credit washed, was similar to the typical consumer in the near prime category (Vantagescore between 601 and 660), Transunion said.

"Credit washing is a silent disruptor in the lending space," said Satyan Merchant, senior vice president, auto and mortgage business leader, in the press release. "It makes it harder than ever for lenders to distinguish between genuine and manipulated profiles.

"What's most concerning is that this behavior is increasingly prevalent among consumers in lower-risk credit tiers, where lenders typically expect better credit performance," Merchant continued.

Data released in August by Juniper Research, based in Hampshire, U.K., predicts a 153% worldwide increase in fraud to $58.6 billion in 2030 from $23 billion in 2025. This is a result of the growth of synthetic identity fraud.

Point Predictive operates a consortium of more than 650 lenders, banks, fintechs and dealer groups.

"Our consortium represents more than just shared data — it's the engine driving unprecedented automation in lending," said Tim Grace, CEO of Point Predictive, in a May press release. "By analyzing patterns across billions of data points, we've enabled lenders to move from manual stipulation of documentation requests to streamlined, intelligent workflows that approve legitimate borrowers quickly while flagging the small percentage of applications that deserve scrutiny."