Understanding Credit Washing: Risks, potential losses and signals associated with this type of First Party Fraud

For financial institutions focused on attacking fraud in all its forms, it’s not enough to think of “identity” through the narrow view of attributes like a consumer’s name, DOB and Social Security number. For most financially active consumers, a key piece of “who you are” is your credit history, as measured by a credit score.

Given its importance to so many aspects of a consumer’s life – from getting a loan, to landing a job or renting an apartment – having a good credit score is a boon, while a bad one can have dire consequences. For those with poor credit – often due to delinquent or over-limit debts – entire industries have developed to help “fix” their credit, sometimes through fraudulent means. One such scam abuses rights afforded to victims of identity theft and is called “credit washing.”

In this paper, we provide an empirical assessment that illustrates the negative consequences credit washing has on lenders and the integrity of the credit reporting system. For example, in our analysis of 9,000,000 US consumers and their credit reports:

• Of the quarter-million charged-off credit card tradelines observed, 17% went missing within seven months. Of those, 41% previously had payments made, which is a strong signal that the account is legitimate and not identity theft.
• The average washed tradeline had a charge-off of $823.
• We estimate total losses in the credit card industry from credit washing to be more than $297 million.
• 90% of suspected credit washers had a credit score increase of up to 99 points.

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