The consumer credit-scoring system has long been opaque and confusing. One change intended to help people navigate the system has created a whole new set of problems, the Wall Street Journal reported. In recent years, a government website has made it easier for people to file claims of identity theft so they can remove fraudulent accounts from their credit reports. Those reports are the basis of credit scores sold by Equifax Inc., Experian and TransUnion to banks as they make lending decisions. That has smoothed the claims process for people who have fallen victim to identity theft. But the credit-reporting industry says it is also being hit by illegitimate claims, facilitated by companies that promise to help customers fix low credit scores for a fee. These companies file false identity-theft claims on items that bring down customer’s credit scores, like delinquent credit-card debt, often without that person’s knowledge. The move often removes that information from the consumer’s credit reports while the claim is investigated. The practice is known in the industry as credit washing, since a person’s credit reports can look better than they really are, at least temporarily, and so can their scores. Credit washing has slowed down the process of getting loans at some banks while lenders look for other ways to evaluate potential borrowers. It has added to questions about how useful credit scores really are and eroded banks’ confidence in the credit-reporting system they have relied on for decades. Equifax, Experian and TransUnion get millions of letters each year that allege errors on credit reports, many claiming identity theft, according to people familiar with the matter. It isn’t known how many are illegitimate claims. Sometimes the companies receive batches of similar letters claiming identity theft or other issues at once — mailed from the same ZIP Code on the same date, some with the same typos.
