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What Consumers Should Know About ‘Credit Washing’

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Getting false information (whether via identity theft or something else) removed from your credit report used to be more complicated. But when IdentityTheft.gov was enhanced in 2016 to more easily allow consumers to file a complaint with the Federal Trade Commission (FTC), things got easier.

This has had an unintended consequence, as recently reported by The Wall Street Journal: Companies that charge consumers to repair their credit started using the free site to file false identity theft claims.

“That claim often leads to the item in question being removed from the person’s credit report (at least temporarily) while the claim is investigated,” says Matt Schulz, LendingTree chief credit analyst. “That removal often bumps up the person’s credit score.”

This practice is known as “credit washing,” and it can cause widespread issues, whether you’re a victim of identity theft or you’re trying to access credit. Here’s what else you should know.

3 things to know about credit washing

No. 1: How credit washing can impact you

Credit washing, as a practice, has an obvious impact on lenders and credit bureaus, as it can lead to an erosion of trust in credit reporting as a whole. But the impact doesn’t stop there.

“Lenders rely on information from the bureaus to help them assess applicants’ creditworthiness,” Schulz says. “If that information isn’t accurate, it makes it harder to make lending decisions. That means more risk for lenders, and that can lead to less lending overall.”

If a ton of knowingly false claims are being filed, Schulz says, it creates unnecessary work for everyone involved, potentially causing legitimate fraud claims to take longer to resolve.

It’s unclear how or if these false claims might impact the consumers who hired credit rehab companies that practice credit washing. But it’s worth noting that some of these companies have faced FTC lawsuits in recent years.

Important for consumers: Filing a claim through IdentityTheft.gov is just a starting point. The website offers a checklist on what to do immediately (including placing a fraud alert and possibly contacting police) and what to do next (including removing bogus charges and writing the three main credit bureaus — Equifax, Experian and TransUnion).

No. 2: What your credit repair options are

Although these companies may suggest they’re the only solution to bad credit, you don’t have to use a credit repair company to improve your credit score.

“The truth is that often there’s not much that credit repair companies can do for you that you can’t do for yourself,” Schulz says. “Trust your gut as it relates to credit repair companies. If something they’re offering sounds too good to be true, it probably is.”

Some of the actions you could take to improve your credit include:

  • Go through your credit report and dispute any errors
  • Consider using Experian Boost (a free service that factors in often overlooked items, like on-time payments for utility bills, to increase your score)
  • Use your credit sparingly (that means not applying for several lines of credit, such as credit cards or loans, within a period of one to two years)
  • Sign up for autopay when possible to avoid late payments that ding your score

If, however, you decide a credit repair company could be useful for you, make sure they’re backed by either the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA). That way, you know they’ve been vetted as a legitimate company.

No. 3: How to remove negative information from your credit report

If you want a negative (but accurate) item removed from your credit report in a legitimate way, you can try sending a goodwill adjustment letter to the lender and ask them to remove the item from your report. There’s certainly no guarantee of success — but it’s worth trying.

“When you do ask, acknowledge that the item is legitimate and then tell your story,” Schulz says. “Maybe you had a medical emergency. Maybe you moved and bills got lost in the mail. Maybe you lost your job and couldn’t pay for a short time. Let the lender know in writing what happened, and they may be willing to help you out.”

If the one item you’re requesting they remove is the lone negative mark on your credit report, share that, too, Schulz says.

 

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