Lenders are on the lookout for consumers who are illegally scraping negative tradelines on credit reports to boost their credit score – and AI is playing a role in both catching the fraudsters and identifying gaps in lending systems. 

The scheme is called credit washing, and it’s on the rise. 

Last year, roughly 5% of U.S. consumers had charged-off accounts suppressed for atypical reasons, with an estimated $10 billion in debt erased from credit reports, according to consumer credit reporting agency Transunion. A usual reason a charge off would be suppressed could be an active fraud investigation or verified identify theft. 

Credit washing is the abuse of the Fair Credit Reporting Act (FCRA) protections that were designed to protect consumers from negative and false information on credit reports, according to credit reporting agency Equifax. For example, under FCRA, consumers could remove credit dings from an identity theft or human trafficking claim that a consumer was a legitimate victim of. 

“There is regulation in place to ensure that somebody who is subject to atypical things are not negatively affected in their credit,” Satyan Merchant, senior vice president, auto and mortgage business leader at Transunion, told FinAi News. 

However, credit washers take advantage of those protections, falsely claiming that negative information on their credit report is incorrect, requesting it to be removed from their reports, he said, noting that when the fraudster washes the credit report, “instantly your credit score goes up.” 

It’s one of the hottest types of fraud right now, Merchant said. 

AI a double-edged sword

AI can help lenders monitor for credit-washed profiles, Jason Kratovil, head of policy and external affairs for identity and risk solution provider SentiLink, told FinAi News. 

Transunion, for one, launched its TruValidate Credit Washing Solution in December 2025. The solution gives lenders a deeper look into borrowers, identifying consumers who may have had atypical changes in reported charge-offs across multiple lender lines. 

While it helps identify fraudulent credit washing, AI also allows fraudsters to scale their attacks, Merchant said. AI helps fraudsters find gaps in lender systems and determine which lenders may be defending against credit washing. 

“So, AI isn’t a fix for credit washing. It’s an accelerant on both sides of an arms race,” Kratovil said. “What actually catches credit washing is what AI can’t fabricate after the fact: Real payment history, real judgement records, a real pattern of behavior across institutions.” 

Loan performance

Lenders find that loans that have been illegally credit washed don’t perform well, Merchant said. 

For example, a loan to a super prime borrower with a credit-washed score performs more like a loan to anear prime borrower, according to Transunion’s latest report released in July. 

That’s because the credit is artificial, Merchant said. 

Register here for the FinAi Lending Summit, set for Oct. 7-8 in Las Vegas. This inaugural event will include speakers from Fifth Third and Capital One as well as a fireside chat with Piermont Bank founder and Chief Executive Wendy Cai-Lee.