Establishing A New Identification To Erase Bad Credit Is A Bad Idea


There is a credit repair scheme targeted to people with bad credit called "file segregation,” in which a consumer is promised a chance to hide bad credit information by establishing a new credit identification. This may sound good if you have been denied credit because of a past bankruptcy or past credit problems, but “File segregation” is illegal. If you use it, you could face fines or even a prison sentence.

Credit repair companies that promise a new credit identity may send a letter that warns you about your inability to get credit cards, personal loans, or any other types of credit. They may also advertise this service in classified ads, on radio and TV, and even over the Internet. For a fee, these companies promise to help you hide a bankruptcy or bad credit by establishing a new credit identity to use when you apply for credit. If you pay the fee and sign up for the service, you may be asked to apply for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). These numbers which resemble Social Security numbers, are used by businesses to report financial information to the IRS and the Social Security Administration. Once you have received your EIN number, the credit repair company will tell you to use it in place of your Social Security number when you apply for credit. They will also tell you to use a new mailing address and some credit references.

It is a federal crime to make any false statements on a loan or credit application. The credit repair company may advise you to do just that. It is a federal crime to misrepresent your Social Security number. It also is a federal crime to obtain an EIN from the IRS under false pretenses. Further, you could be charged with mail or wire fraud if you use the mail or the telephone to apply for credit and provide false information. Worse yet, file segregation likely would constitute civil fraud under many state laws.