Credit Washing

Credit washing summary: 

• Credit washing is a form of financial fraud and a federal crime.

• People who commit credit washing falsely claim to be victims of identity theft in order to get unpaid debts removed from their credit report. 

• Some disreputable credit repair companies commit credit washing without their customers’ knowledge. 

Credit Washing Definition and Meaning

Credit washing is a form of financial fraud in which people falsely claim to be victims of identity theft in order to get unpaid debts removed (washed) from their credit report. Credit washing is not a legitimate way to rebuild credit. It’s a scam that cheats banks and creditors out of the loan repayments that they were entitled to, and cheats future creditors by providing false information.

Identity theft victims aren’t liable for fraudulent charges and are protected from credit score damage. The financial industry has rules in place to help victims of identity theft. 

Credit washing exploits the protections included in the Fair Credit Reporting Act that are designed to aid victims of identity theft. Fraudsters use credit washing to get unpaid debts removed from their credit report by claiming to be victims of identity theft.

Credit washing is sometimes committed by unscrupulous credit repair companies. Some of these credit repair businesses claim to be helping people improve their credit, but they’re actually just making false reports of identity theft—sometimes without the customer’s knowledge. 

A 2023 study from the American Bankers Association found that the credit card industry lost about $297 million due to credit washing. Over the past few years, financial institutions have seen a spike in the number of disputes on delinquent accounts, with some reporting close to 1,000 per month. 

Credit washing is not a victimless crime. It drives up borrowing costs for everyone else and undermines the integrity of the financial system. Making false statements on a credit application is a federal crime and those who try it can be prosecuted.

Credit Washing: a Comprehensive Breakdown 

People mainly attempt credit washing to have unpaid debts removed from their credit report instead of using legitimate solutions like debt settlement or bankruptcy to solve their financial problems. Credit washing is a shortcut in which people illegally claim to be victims of identity theft. This can result in legitimate debts being temporarily deleted from their credit history. 

Credit washing has a few key features: 

• Making a false claim of identity theft 

• Working with a disreputable credit repair company 

• Credit repair companies promising guaranteed, significant boosts in a credit score 

• Disreputable social media influencers or YouTubers offering quick fixes for credit 

Real-Life Examples of Credit Washing 

A young couple gets the chance to buy their neighbor's house for a really good price. Unfortunately, they have so much credit card debt that they missed some payments and can't get approved for a mortgage. After seeing a social media post about it, they decide to claim the accounts were not opened by them and that they're identity theft victims. 

When financial institutions receive disputes from people claiming to be victims of identity theft, they have to investigate. During the dispute process, disputed accounts can be temporarily removed from the customer’s credit report. This can lead to a short-term increase in credit score for the customer who claims identity theft. 

Even though the credit score increase is temporary, it could help them get a loan for which they don't qualify. 

Credit washing is illegal and can lead to criminal charges. It drives up costs for everyone else who needs access to credit. And it undermines trust and confidence in the financial system in ways that hurt everyone.