A settlement between the Federal Trade Commission and so-called "credit repair" companies bars those companies from promising to erase your past credit problems by helping you apply for a "new Social Security number." The companies cannot claim their "file segregation" scheme is legal and must notify former customers that they may have committed a felony by using a false identification number to apply for credit.
The companies targeted thousands of people-including people who had recently filed for bankruptcy-through advertisements on the Internet, radio and through the mail. The advertisements claimed consumers could legally get a fresh credit start if they purchased instructions detailing how to apply for a "new Social Security number."
Consumers actually were directed to apply for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). EINs resemble nine-digit Social Security numbers, and are usually used by businesses to report financial information to government agencies. Individuals were told to lie and apply as if they were starting a business. Once consumers had this "new" number, the credit repair service told them to use it in place of their Social Security number on credit applications. Because your credit history is tied to your Social Security number, the person's old, negative credit information would not be attached to the new EIN.
However, several aspects of the credit repair service's program led consumers to commit fraud. It is a federal crime to:
In addition to the FTC's legal action against the credit repair companies, the office of the Treasury's inspector general for tax administration investigated more than 100 credit repair companies and individuals that sold or used the EINs to defraud creditors. Dozens of charges were filed, ranging from misrepresentation of a Social Security number to mail fraud and conspiracy. The office is still investigating hundreds more people who have illegally used EINs.
- make false statements on a loan or credit application.
- misrepresent your Social Security number.
- obtain an EIN under false pretences.
Improve Your Own Credit by Handling it Well
These companies played on consumers' worst fears, telling them a bankruptcy or bad credit history would 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.
Ultimately, the same rule applies to file segregation as to any other kind of "credit repair" system: There's nothing anyone out there can legally do to improve your credit rating that you can't do yourself for free.
CreditMatters Related Links:
Credit Repair Scam Could Lead You To Commit Fraud
The Pros and Cons of Credit Counseling
Rebuilding Credit After Bankruptcy