People with bad credit should be wary of companies that promise to significantly improve their credit scores. They could be engaged in the illegal practice of “credit washing” and land you in trouble.
What is credit washing?
Credit washing is a type of credit fraud that involves falsely disputing accurate negative information on a consumer’s credit report. This can be done by claiming that the information is the result of identity theft, even when it is not.
Victims of identity theft are afforded certain rights under the federal Fair Credit Reporting Act (FCRA) including the right to dispute a tradeline on their credit report that resulted from identity theft.
If the dispute is successful, the consumer can receive a bump to their credit score. A study by SentiLink found that 90% of suspected credit washers had a credit score increase of up to 99 points.
Consumers engaging in credit washing often go delinquent, claim identity theft, get new credit at a different bank, max that out, claim identity theft. Rinse and repeat.
Be wary of any company that promises to quickly remove negative information from your credit report, it could be engaged in credit washing.
What are the consequences of credit washing
Credit washing is fraud and can have serious consequences for consumers. If a consumer is caught credit washing, they could be fined, jailed, or both. They may also have their credit report flagged, making it difficult to obtain new credit or loans in the future.
Recent cases of credit washing gone wrong
There have been several recent cases of consumers or credit repair companies being caught in the scheme of credit washing.
One example is the case of Financial Education Services (FES), a credit repair company that was sued by the Federal Trade Commission (FTC) in 2022 for allegedly bilking consumers out of more than $213 million. The FTC alleged that FES used a variety of deceptive tactics, including credit washing, to prey on consumers with low credit scores.
Another example is the case of Alex Miller Credit Repair, a credit repair company that was also sued by the FTC in 2022. The FTC alleged that Miller Credit Repair filed fake identity theft reports on behalf of its customers in order to remove accurate negative information from their credit reports. Additionally, the company collected advance fees from customers of $1,500 in violation of the Credit Repair Organizations Act (CROA) and the FTC’s Telemarketing Sales Rule (TSR) that prohibits collecting payment for credit repair services prior to completion of the services.
How does a credit bureau detect credit washing?
It’s not difficult for a major credit bureau to discover when a consumer is engaged in credit washing. There are a number of red flags that credit bureaus can look for, including:
- Multiple disputes in a short period of time. If a consumer disputes a large number of items on their credit report in a short period of time.
- Disputes of accurate information. If a consumer disputes accounts that have been reporting and payments have been made for several years, then all of a sudden, identity theft is reported, this can be an indication of credit washing.
- Multiple disputes from one source. If a credit bureau sees that a large number of disputes are coming from the same IP address or contain the same spelling errors of other consumer disputes, this can be a sign that a credit repair company is engaging in credit washing.
Credit bureaus have a number of sophisticated tools and algorithms that can help to detect credit washing and if a bureau determines that the consumer may be engaged in credit washing, the disputed negative information will remain on the consumer’s credit report.
Additionally, the credit bureau may report the consumer to the authorities for investigation. Credit washing is a serious crime and can have serious consequences for consumers.
Hiring a credit repair company is legal
There’s nothing wrong with hiring a reputable credit repair company. In fact, if you have a busy schedule, a credit repair company is recommended because it takes time and knowledge to engage in fixing your credit.
If you’re considering hiring a credit repair company, be sure to do your research and get a free consultation first.
Here are some tips for choosing a reputable credit repair company:
- Ask for a free consultation. This will give you a chance to learn about the company’s services and how they can help you.
- Get everything in writing. This includes the terms of the contract, the services that will be provided, and the fees that will be charged.
- Make sure the company is licensed and bonded. This will help protect you if something goes wrong.
- Stay away from CPNs. If a credit repair company mentions a CPN (credit privacy number) to apply for new credit — run, not walk to the nearest exit. CPNs are nine-digit numbers that are formatted like Social Security numbers. They are often sold by companies that claim they can help people repair their credit or get new credit even if they have bad credit. However, CPNs are not issued by the government and have no legal standing. Using a CPN to apply for new credit is considered fraud.
How to avoid credit washing scams
Reputable credit repair companies can help consumers with bad credit. But if a credit repair company or so-called credit repair guru makes promises that seem too good to be true ⏤ watch out!
- Be wary of any credit repair company requesting an upfront fee. Charging an upfront fee is prohibited by the Credit Repair Organizations Act (CROA), a federal law that protects consumers from unfair and deceptive practices by credit repair companies.
- Do not provide any personal information to companies that you do not trust.
- Be careful about signing any contracts without reading them carefully first.
- If you are unsure about a company’s legitimacy, contact your state’s attorney general’s office or the Better Business Bureau.
If you’re struggling with your credit, there are legitimate ways to improve your scores. You can start by paying your bills on time and keeping your credit utilization low. You can also try disputing any errors on your credit report and getting a secured credit card and credit-builder loan.
It takes some time and effort to build good credit, so don’t be in such a hurry that you wind up in more trouble than just low credit scores.