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: 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.

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.

A start to rebuilding your credit is to get a copy of your credit report and see what lenders will see. Get a FREE credit report and a 30-day trial of the CreditCheck Monitoring Service!