Advertisements
mailed to consumers and on the Internet, radio, and TV claim
that for a small fee you can legally leave behind your credit
problems--even a bankruptcy. With lots of language about
the "legal forms from the federal government" and
your one-time "right" to apply for a "new
Social Security number" these advertisements try hard
to convince you that their system, called "file segregation," is
the secret to a fresh start with credit.
The trouble is, they're lying.
File Segregation Creates a False Identity
If you sign up for one of these services, you will most
likely be instructed to apply for an Employer Identification
Number (EIN) from the Internal Revenue Service (IRS). EINs
resemble Social Security numbers, and are usually used by
businesses to report financial information to government
agencies.
Once you have this "new" number,
the credit repair service will tell you to use it in place
of your Social Security
number on credit applications. They may also instruct you
to use a new mailing address and offer some credit references.
They explain that because your credit file is tied to your
name and Social Security number, using this new number and
information allows you to create a brand new credit file.
Credit-grantors requesting a credit report with your name
and new number will never see your previous file with all
the negative information it contains.
The credit repair service will most likely offer very reasonable
and legitimate sounding cautions. They'll remind you that
to make this clean slate count, you have to pay your bills
on time from now on. They'll also tell you it will take 60-90
days before your new credit rating really begins to work
for you, since, after all, you're starting from scratch.
Segregating Your File Violates the Law
That legitimate veneer covers up a truly nasty trick.Unlike
other credit repair scams that may make you the victim of
fraud, this scam makes you a perpetrator of fraud against
the government. If you try file segregation, you could face
fines or even a prison sentence.
Several aspects of the credit repair service's program could
lead you to commit fraud.
It is a federal crime to:
- make false statements on a loan or credit application.
- misrepresent your Social Security number.
- obtain an EIN under false pretences.
In addition, if you were to use the telephone or the postal
system to apply for credit and provide false information,
then you could be charged with mail or wire fraud, too. And,
file segregation likely would constitute civil fraud in many
states.
"Repair" Your Own Credit
by Handling it Well
People who have recently filed for
bankruptcy are particularly likely to be targeted by mailings
and advertisements by "credit
repair services" such as these. They play on consumers'
worst fears, telling them that a bankruptcy or bad credit
history will make it impossible for them to get any credit
at all for years to come.
That's a lie, too. Certainly, a poor credit history will
impact your ability to obtain new credit, but there are many
options available for people who are ready to begin rebuilding
their own, legal credit file. Many major banks now offer
secured cards, for example, that allow a person with poor
credit to begin establishing a track record of bills paid
on time. And after just a couple of years, many people who
have filed for bankruptcy find that some lenders are willing
to consider them for small loans, allowing them to start
over without falsifying their identity or applications.
Related Links:
Use the Budgeting
Calculators at MsFinancialSavvy.com
Accelerated
Debt Payoff Calculator
Credit Card Calculator
Lois Center-Shabazz is the founder of MsFinancialSavvy.com and author of the
3-time award-winning personal finance book, Let's Get Financial Savvy! ISBN
#0971979502.
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