TransUnion (NYSE: TRU) launched a new solution designed to combat credit washing—the practice of removing legit, accurate and “non-obsolete” credit data from credit profiles. TransUnion’s so-called Credit Washing Solution helps financial institutions detect and combat this concerning threat.
This year, around 5% of U.S. consumers had charged-off accounts suppressed for atypical reasons, with an estimated “$10 billion in debt erased from credit reports by the end of the year.”
These atypical suppressions—driven by consumer, lender, credit repair and debt settlement practices—cause artificial “increases in credit scores that can dramatically alter how a consumer’s risk is assessed.”
A TransUnion analysis indicates a nearly “700% increase in consumer-initiated charge-off suppressions” over the last couple years, and a “200% increase in lender-initiated suppressions over the last four.”
As these incidents continue to increase, the Credit Washing Solution offers a defense using analytics and machine learning.
Steve Yin, global head of fraud at TransUnion said that credit washing continues to be a “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.”
Their 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.”
Yin added:
“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.”
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 powerful 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 offered 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 now said to be in development and will be introduced in the foreseeable future.