AOH :: FTC024.TXT|
The "New Credit Identity" Credit Repair Scam
Facts for Consumers from the Federal Trade Commission
A New Credit Identity: A New Credit Repair Scam -- November 1992
If you have filed for bankruptcy, you may be the target of a new
credit repair scheme, often called "file segregation." In this
scheme, you are promised a chance to hide unfavorable credit
information by establishing a new credit identity. That may sound
perfect, especially if you fear that you will not be given any
credit as long as bankruptcy appears on your credit record.
The problem is, "file segregation" is illegal. If you use it, you
could face fines or even prison.
This fact sheet alerts you to some aspects of this new type of
credit repair scam, describes the false claims that fraudulent
companies sometimes use to sell you the service, and says why
participation is illegal. It also lists other FTC brochures that
discuss your credit rights and responsibilities.
The Pitch: A New Credit Identity
If you have filed for bankruptcy, you may receive a letter from a
credit repair company that warns you about your inability to get
credit cards, personal loans, or any other types of credit for
ten years. For a fee, the company promises to help you hide your
bankruptcy and establish a new credit identity you can use when
applying for credit.
If you pay the fee and sign up for the service, you may be
directed to apply for an Employer Identification Number (EIN)
from the Internal Revenue Service (IRS). Typically, EINs_which
resemble social security numbers_are used by businesses to report
financial information to the IRS and the Social Security
After you receive your EIN, you are advised to use it in place of
your social security number when you apply for credit. You also
are advised to use a new mailing address and to include some
The Catch: False Claims
Listed here are reasons a credit repair service may give you for
establishing a new credit identity. These false claims, along
with the pitch for getting a new credit identity, should alert
you to the possibility of fraud.
Claim 1: You will not be able to get credit for 10 years (the
period of time bankruptcy information may stay on your credit
Each creditor has its own criteria for granting credit. While one
may reject your application because of a bankruptcy, another may
grant you credit shortly after you filed for bankruptcy. And,
given a new reliable payment record, your chances of obtaining
credit will probably increase as time passes.
Claim 2: The company or "file segregation" program is affiliated
with the federal government.
The federal government does not support or work with companies
offering such programs.
Claim 3: The "file segregation" program is legal.
It is a federal crime to make any false statements on a loan or
credit application, which the credit repair company may advise
you to do. 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. Also, file segregation would likely constitute
civil fraud under many state laws.
If you receive a letter from a company making such claims,
contact your state attorney general or consumer protection
office. You also can file a complaint with the FTC. Write:
Correspondence Branch, Federal Trade Commission, Washington, D.C.
20580. While the FTC does not handle individual cases, it can act
against companies when it sees a pattern of possible law
Other FTC Brochures
For more information about credit reports, you can order these
free FTC brochures: Building a Better Credit Record, Credit
Repair Scams, Fair Credit Reporting, Fix You Own Credit Problems
and Save Money, Scoring for Credit, Solving Credit Problems, and
Women and Credit Histories. Write: Public Reference, Federal
Trade Commission, Washington, D.C. 20580.
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