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Danny Lewis: Here's Your Money Briefing for Tuesday, December 13th. I'm Danny Lewis for The Wall Street Journal, filling in for J.R. Whalen. If you've ever been the victim of identity theft, you know how hard it can be to file a claim and to try and fix any damage that's been done to your credit score. In recent years, the US government has tried to make that easier, but there's a catch.
AnnaMaria Andriotis: The purpose of creating this site was to make it easier for people to get an identity theft report in order to be able to file a claim with a credit reporting firm. However, it also has made it easy for fraudsters.
Danny Lewis: Our reporter, AnnaMaria Andriotis, has been looking into a practice known as credit washing. On today's show, she'll break down how it works and what it means for you and your credit. That's after the break.The consumer credit-scoring system can be confusing, especially when your score has been dinged by identity theft. A few years ago, the US Federal Trade Commission set up a website, identitytheft.gov, to make it easier for people to remove fraudulent accounts and charges from their credit reports. But the credit reporting industry says that's led to some companies filing false identity theft claims to temporarily boost a customer's credit score, a practice they call credit washing. So if you're having trouble with your credit, what do you need to know? The Wall Street Journal's AnnaMaria Andriotis has been looking into credit washing, and she joins us now. Hey, AnnaMaria. Thanks for being here.
AnnaMaria Andriotis: Great to be speaking with you.
Danny Lewis: So walk me through how this happens. How might a typical consumer get wrapped up in one of these credit-washing schemes?
AnnaMaria Andriotis: So there's tons of things that people would want to get off their credit reports. Bankruptcies. If they had a mispayment to their credit card or to some other type of loan. Credit cards that are maxed out. Things that might make people look like they're too in debt. There's an industry, essentially, that makes its money by telling people that it can remove negative items from their credit report. And these companies are called credit repair firms. They're all over social media, and they really do attract people's attention. So when people present themselves as, "I'm with a credit repair company and I can help you increase your overall credit standing and you can get that car you want or you can become a homeowner," that becomes really appealing to people.What people don't often know is some of the tactics that some of these companies use in order to increase their credit scores and get negative items removed from their credit reports because federal law that governs the credit reporting industry states that, "As long as a consumer files all the required documents with the credit reporting firms when they're making the allegation of identity theft, the account needs to get removed from the credit report within four business days."Now, if an investigation finds that actually this was a legitimate account, the credit reporting firms can add that back on to the credit reports. But there's that interim period where the negative information gets quickly removed from the credit report. A person's credit score goes up. Person is able to go and apply for credit, looking like a pretty decent borrower and get approved for credit that they otherwise would not have gotten approved for or get approved for it at a lower interest rate they would've otherwise received.
Danny Lewis: Okay. So what do these credit repair companies actually do then?
AnnaMaria Andriotis: So their primary purpose is to get negative information removed from credit reports. They send letters, usually on behalf of their consumer clients, to the three credit reporting firms, Equifax, Experian, and TransUnion, saying that a particular account or accounts need to get removed from people's credit reports. Sometimes they'll say they are erroneous. Other times they will say vague things like, "The debt was settled," or, "We don't think this account belongs to this person." They charge consumers, usually on a monthly basis; sometimes there's an upfront fee, for doing this work. When credit reporting firms receive these letters from credit repair firms, the credit-reporting firms send those letters directly to the lender associated with your account. So if you are saying, "This bank's credit card, that's not my account. I don't know why it's on my credit report," the credit reporting firm will send it to that particular bank. An investigation will ensue. So just because something gets removed because of a credit repair firm's help now doesn't mean that two months from now or down the road, at some point, it's not going to get added back on.
Danny Lewis: You've reported that American consumers are filing more claims of identity theft now than before, but is this all fraud?
AnnaMaria Andriotis: So it's certainly not all fraud. Last year, US consumers reported roughly 588,000 of these cases to the FTC. That was up from 155,000 claims five years earlier. Now, the FTC says that there's a variety of reasons. Data breaches, new ways to commit identity theft. Increased consumer awareness of how they can file these complaints. But I think what's important to also be aware of is that mixed into these numbers are also the illegitimate cases that are being filed. And the FTC has sued several credit repair firms in recent years for filing identity theft reports via the FTC's website that were false. The fact is that the purpose of creating this site was to make it easier for people to get an identity theft report in order to be able to file a claim with a credit reporting firm. However, it also has made it easy for fraudsters to try this path, whether it's individual fraudsters or credit repair firms that are basically trying to make a case to their clients why they're charging them hundreds of dollars a month to improve their credit report.
Danny Lewis: What do credit repair companies say about all this? Is there ever a good reason for someone to call a credit repair company?
AnnaMaria Andriotis: So I spoke with one woman representing the industry, Donna Perkins, vice president of National Association of Credit Services Organizations, who said the companies that are filing false identity theft claims are the exception and not the standard in the sector. So overall, the people for whom credit repair services most appeal to are people who are in financially vulnerable positions. People who can't get an apartment because their credit report has negative information and the landlord won't approve them for it. People who need a car to get to work and can't get a car loan because of their low credit standing. So for many people, credit repair firms are like a last stop, and they're really relying on them to help them get the necessities that they need.
Danny Lewis: So what should people know if they do decide to go that route?
AnnaMaria Andriotis: One, they should definitely be aware of any documents that are being sent out in their names. It's also very important to know the length of time during which accounts stay on people's credit reports. Generally, the rule of thumb is that it's usually seven years. So if someone is telling you that they can get this thing off quickly, that would be a red flag. Last thing to be aware of, even if an account gets removed from your credit report, it can get added back on. So it could be a month later, two months later, where the lender and the credit reporting firm basically come to the conclusion based on the investigation that was done, that this is a legitimate account, and that account would then get added back on to the person's credit report.
Danny Lewis: AnnaMaria Andriotis is a reporter for The Wall Street Journal. Thanks for joining us.
AnnaMaria Andriotis: Thank you.
Danny Lewis: And that's Your Money Briefing. I'm Danny Lewis for The Wall Street Journal.
