Many consumers fall behind on credit bills. Whatever the reason, a string of “late payment” letters often signals a person’s credit score is taking a big hit, as well. Many companies purport to offer a solution: File a claim with your lender that you’re a victim of identity theft, stating the account isn’t yours, and you will get a quick boost to your credit score. What’s more, if you stick with it, you might be able to get your delinquent account completely removed from your credit report, freeing yourself from any obligation to repay.
Sound too good to be true? Unfortunately, this scam is all too real. It’s called “credit washing” — as successful attempts effectively wash clean a person’s credit history of one or more bad debts — and is a growing problem for financial institutions, as well as for legitimate victims of identity theft.
At its heart, credit washing exploits protections U.S. Congress included in the Fair Credit Reporting Act designed to aid victims of identity theft. Under that law, if a consumer is a victim of alleged identity theft, they can alert the financial institution or any of the nationwide credit bureaus, which are required by law to block the reporting of the disputed account — called a “tradeline” — within four days. Granted, such a request from a consumer can be refused or later revoked if the institution can prove a misrepresentation, but that is not always possible in the narrow window of time granted by the law and the institution’s likely inability to determine malfeasance. When a delinquent trade line is not factored into a credit score calculation, that score can rise.
Sophisticated scammers will take advantage of the newly washed and improved credit score and quickly apply for new credit, beginning the cycle anew: Go delinquent, claim identity theft, get new credit at a different bank, max that out, claim identity theft. Rinse and repeat.
Over the past few years, financial institutions have seen a spike in the number of disputes on delinquent trade lines, with some reporting close to 1,000 per month. Looking back, this trend appears to correlate with a change made by the Federal Trade Commission, which provides the “identity theft report” a consumer can mail in to exercise their previously mentioned rights under the FCRA. In 2017, the FTC made it easier for victims of identity theft to exercise their rights by removing the requirement that a police report had to accompany their claim of identity theft. While this change was good for legitimate victims, it also made it easier for would-be credit washers, enabling them to take advantage of the system.
For an actual victim of identity theft, becoming one of 1,000 similar monthly reports a bank must investigate makes getting the high level of focused attention she deserves difficult. While the immediate credit score protection afforded by the start of the FTC process is nice, a victim likely has more significant issues to resolve, like determining the full extent of the damage, both financial and emotional, the identity theft has caused to their life. When resources are stretched thin, dealing with credit washers puts true identity theft victims at a distinct disadvantage.
Last year, the FTC drew attention to its own data, noting significant increases in reports of identity theft, as well as patterns indicating abuse of the resources available at identitytheft.gov. Additionally, the FTC and Consumer Financial Protection Bureau have increased their focus on credit repair schemes through enforcement actions and consumer advisories. Unfortunately, these efforts have not curbed the abuses.
To start, tackling the problem requires industry stakeholders to address two key priorities: First, define the issue by identifying a common set of patterns that indicate credit washing but exclude true identity theft victims; second, use those findings to accurately describe the size and scope of the problem and quantifying its financial cost.
While more work needs to be done, we’ve already learned some interesting behavioral trends: Repeat credit washers will proactively call their bank to request a credit line increase, and any new credit they’re able to obtain is often maxed out within weeks.
As our examination of the impact of credit washing on the financial industry continues, one thing is clear: Policymakers will need to work with the industry to find innovative ways to stem the flood of credit washing cases, making it harder to scam the system, while ensuring legitimate victims are afforded the protections they need.
Photo byrupixen.comonUnsplash
FAQs
In recent years, the financial world has been grappling with a concerning trend known as "credit washing." This deceptive practice involves individuals making false identity theft claims or other illegitimate allegations to the Federal Trade Commission (FTC) in an effort to erase bad but legitimate credit history.
Is credit washing illegal? ›
Inserting false information into your credit report is a form of fraud, as is removing information that is accurate. You can improve your credit score legally, however, by removing inaccurate information.
What is credit washing? ›
For the uninitiated, credit washing is the practice by which unscrupulous individuals approach creditors with false claims of identity theft. This allows them to “wash” the negative claims off their record and take out car loans at rates they aren't qualified for.
What happens if a credit card is washed? ›
So, will credit card work after getting washed? In summary, your credit card will likely survive if it accidentally goes through the wash. It's less likely to still work after going through the dryer, but even then, it may still be okay to use – as long as it hasn't-hasn't been warped or scratched.
Why do people wash their credit cards? ›
Sanitizing credit cards keeps them clean and prevents potential transfer of bacteria or viruses. Most household products will properly clean credit cards. Always wipe the cards gently to protect the chip and magnetic strip. Minimize contact between credit cards and public surfaces by using contactless or mobile pay.
What is the 609 credit law? ›
The Fair Credit Reporting Act section 609
Under the Fair Credit Reporting Act, credit bureaus, medical information companies and tenant screening services must protect consumer data. These companies must maintain accurate records and investigate when a consumer disputes information.
Why credit sweeps are illegal? ›
As John puts it, it is clear that credit sweeps are fraudulent and illegal. Not only are you lying to the CRAs, but also to the police, and filing a false police report is against the law.
Is it true that after 7 years your credit is clear? ›
In general, most debt will fall off of your credit report after seven years, but some types of debt can stay for up to 10 years or even indefinitely. Certain types of debt or derogatory marks, such as tax liens and paid medical debt collections, will not typically show up on your credit report.
Can I pay someone to fix my credit? ›
Repairing your credit doesn't have to cost you anything. You can handle the process yourself by following the step-by-step instructions on the three major credit bureaus' websites. If you want help, you can hire a credit repair company to assist you.
Does credit cleaning really work? ›
While credit repair can successfully address errors, inaccuracies and outdated information on credit reports, you cannot remove accurate and verifiable data. Legitimate credit repair companies can help identify and dispute negative items that are dragging down your credit score.
Gently wipe with a soft, slightly damp, lint-free microfiber cloth. Moisten a soft, microfiber cloth with isopropyl alcohol and gently wipe the card. (Apple warns against using window or household cleaners, compressed air, aerosol sprays, solvents, ammonia or abrasives to clean your titanium Apple Card.)
Can you use Clorox wipes on credit cards? ›
If you prefer, you can also just wipe your cards down with a disinfectant wipe, but you'll want to make sure the wipes have a gentle formula that won't damage your card. Keep in mind: You may notice that your signature faded or got wiped away when you cleaned your card.
Will a debit card work if washed and dried? ›
Answer and Explanation:
Credit/debit cards generally work after going through the washer but they may not work after going to the dryer as the dryer's heat may damage its magnetic strip.
Are credit cards dirtier than cash? ›
After testing the front and back of 41 different debit and credit cards, 27 different bills, and 12 different coins, and calculating the average germ scores for each payment based on the results, debit and credit cards turned out to be the dirtiest payment method.
What is credit card scrubbing? ›
Fraud scrubbing helps your eCommerce site safely and securely accept credit cards by verifying IP addresses, matching IP geolocation with billing address, and even checks IP blacklists. Stay Protected. Fraud scrubbing is a form of protection that doesn't just cancel a sale.
Why are credit cards a trap? ›
Here's how most people get trapped in credit card debt: You use your card for a purchase you can't afford or want to defer payment, and then you make only the minimum payment that month. Soon, you are in the habit of using your card to purchase things beyond your budget.
Is credit churning legal? ›
No, credit card churning is not illegal. However, it may be against the terms and conditions of some credit cards, which means the card issuer reserves the right to close your account or confiscate your rewards.
Can you legally erase bad credit? ›
No, you cannot remove accurate information from your credit report. The bureaus are required to include all accurate information. While it's unlikely, you can ask the creditor to remove the negative item from your report.
Is it illegal to charge credit repair upfront? ›
These companies are required to follow federal and state laws including the Credit Repair Organizations Act and often the Telemarketing Sales Rule both of which prohibit credit repair organizations from using deceptive tactics and accepting upfront fees.
Is it legal to check someone's credit without permission? ›
The bottom line
Even those who want access to your report can only ask for it if they have a legally permissible reason to do so. Both the credit reporting bureau and the person seeking access without a “permissible purpose” can be held liable if they breach the FCRA.
