CHICAGO– An estimated $10 billion in debt has been erased from credit reports as the result of up to 5% of U.S. consumers having “charged-off accounts suppressed for atypical reasons,” according to a new report from TransUnion, which said a new fraud analysis reveals near 700% increase in consumer-initiated charge-off suppressions over the past two years.
The practice is known as “credit washing,” which is the removal of “legitimate, accurate and non-obsolete credit data from credit profiles,” with the company saying it now offers a solution that enables lenders to route suspicious consumers to manual review, reducing early charge-offs.
According to TransUnion, its Credit Washing Default Score identifies consumers with a history of charge-off suppression who may be at elevated risk of defaulting on new accounts within 12 months. The product also includes algorithms that track changes in reported charge-offs across six lines of business, including auto loans and bank cards, the company said.
‘Great Financial Loss’
The numbers in TransUnion’s new fraud analysis show a nearly 700% increase in consumer-initiated charge-off suppressions over the past two years, and a 200% increase in suppressions initiated by lenders over the past four years.
Steve Yin, global head of fraud at TransUnion, said in statement that credit washing has led lenders to experience “great financial loss from consumers whose credit and fraud risk is not accurately represented due to missing credit history.”
According to TransUnion’s research, atypical charge-off suppressions can inflate consumers’ credit profiles by at least one risk tier on average — say, from near prime to prime. In extreme cases, a borrower can jump from subprime to super prime overnight.
What’s Important to Remember
“It’s important to remember that credit washing is not the same as the removal or correction of inaccurate or illegitimate credit data, an important consumer protection to address genuine issues with a credit report,” Yin added in the statement.
