March 18, 2018
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Credit Repair Scams - File Segregation

If you’ve ever been through a financial crisis to the point where your credit rating is a mess, starting over with a “clean slate” was probably something you wished you could do. Going through bankruptcy court can also make the idea even more appealing, especially if you’re worried that you won’t be able to get a mortgage or an auto loan for years to come. People who have filed for bankruptcy may become the target of a credit repair scam called file segregation in which you are promised a new credit identity by hiding negative credit information. What the credit repair companies don’t tell you is that file segregation is a felony, subject to fines or even prison.

How the scheme works
For a fee, the credit repair company promises to help you hide your bankruptcy and establish a new credit identity to use when you apply for credit. Typically, they direct you to contact the Internal Revenue Service (IRS) and apply for an Employer Identification Number (EIN). This EIN number is like a Social Security Number for businesses. When you apply for credit, they suggest you use this new number instead of your Social Security Number, as well as a new mailing address and credit references.

You may wonder how they convince people to apply for an EIN number. After all, it does sound a little shady. Some consumers get taken advantage of because they don’t realize what they’re being asked to do. Dishonest credit repair services rely on false claims to persuade consumers to hand over some money and sign on the dotted line. Here are some false claims they may use:

Ø      Claim you will not be able to obtain credit for 10 years—

The truth is that each creditor has its own criteria for approving credit. One may reject your application, while another may accept it. Consistently demonstrating a reliable payment record will increase your chances of getting credit.

Ø      Claim that file segregation is affiliated with the federal government—

The truth is the government isn’t involved with companies that offer such programs.

Ø      Claim that file segregation is legal and a lot of people do it—

The Federal Trade Commission states that 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.

What you can do

Steer clear of any credit repair companies who suggest “re-inventing” a new credit identity, changing your name, or obtaining a new Social Security Number. Tactics like these are shady and should raise a red flag.





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