CHICAGO—With credit washing erasing billions in legitimate debt from consumer files and warping lenders’ view of borrower risk, financial institutions are facing a fast-escalating threat that’s already reshaping credit-decisioning.
TransUnion estimates that by year-end, about 5% of U.S. consumers will have had charged-off accounts suppressed for atypical reasons—wiping roughly $10 billion from credit reports and artificially inflating scores that determine everything from auto-loan pricing to credit-card approvals.
To counter that surge—marked by a 700% jump in consumer-initiated suppressions in just two years—TransUnion has introduced what it calls the industry’s first Credit Washing Solution, a machine-learning tool aimed at helping lenders identify and stop improper data removals. For credit unions, which often pride themselves on relationship-based underwriting, the solution could become a critical safeguard against unknowingly taking on elevated risk as manipulated scores become more common.
“Credit washing continues to be a significant detriment to the credit ecosystem with lenders experiencing great financial loss from consumers whose credit and fraud risk is not accurately represented due to missing credit history,” said Steve Yin, global head of fraud at TransUnion. “Our credit washing solution helps identify those consumers with hidden risk before they become a financial burden for lenders.”
TransUnion’s research shows that following the suppression of derogatory data, an average consumer’s credit risk will be inflated by at least one risk tier, in extreme cases shifting from subprime to super prime overnight. Furthermore, consumers with atypical charge-off suppressions are 3.5 times more likely to charge off a new account within a year of account opening compared to consumers with no credit washing activity.
“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. On the other hand, when accurate data is suppressed for the purpose of presenting as a lower-risk borrower, that is a form of credit washing,” added Yin.
TransUnion Credit Washing Solution Surfaces Hidden Risks
The TransUnion Credit Washing Solution enables lenders to route potentially high-risk consumers to manual review, optimize credit limits, and reduce early charge-offs. The solution offers three indicators:
- Credit Washing Default Score: A machine-learning model that identifies consumers with a history of charge-off suppression who may be at elevated risk of defaulting on new accounts within 12 months
- Tradeline Washing Attributes: Algorithms that calculate changes in reported charge-offs across six lines of business (auto loan, bank card, collections, mortgage, personal loan, and retail card) and a range of time periods
- Inquiry Washing Attributes: Algorithms that calculate changes in hard inquiries across four lines of business and six time periods
The solution is initially available as add-ons to TransUnion’s credit and model reports and can be leveraged during prescreen, prequalification, and portfolio review processes. Additional delivery channels and third-party platform integrations are in development and will be announced in the coming months.
“Our credit washing solution is a testament to TransUnion’s focus on developing innovative solutions that help our customers continue to grow their businesses while protecting themselves from bad actors,” said Jason Laky, executive vice president and head of financial services at TransUnion. “Ultimately, this new first-in-class solution empowers lenders to proactively identify and manage credit washing risks, helping them make more informed decisions.”
To learn more about how TransUnion’s Credit Washing Solution can help lenders detect credit washing activity, better manage hidden risk and decrease losses, click here.