If
you have filed for bankruptcy or have bad credit, you may be the target
of a new credit repair scam called "file segregation." In
this scam, 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 never be given any credit as long as you
have bad credit or a bankruptcy on your credit record. The problems
is, "file segregation" is illegal. If you use it you could
face fines or even prison. This page will alert you to some aspects
of this new type of credit repair scam, it describes the false claims
that fraudulent companies sometimes use to sell you the service, and
illustrates why participation is illegal.
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 with
that bankruptcy on your credit record
Each creditor has its own criteria for granting credit. While one
may reject your application because of 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 these companies
offering such programs.
Claim
3: The "file segregation program is legal.
It is a federal crime to make any false statements on loan or credit
application, which the credit repair companies, may advise you to
do. It is a federal crime to misrepresent your social security number.
It is a federal crime to obtain an EIN number from the IRS under false
pretenses. Further, you could be charged with mail or wire fraud if
you use the mail or telephone to apply for credit and provide false
information. Also, file segregation would likely constitute civil
fraud under many state laws.
The
Pitch: A new Credit Identity
If you
have bad credit or filed for bankruptcy, you may receive in the mail
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 10 years. For a fee, the company promises to help you hide your
bad credit or 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).
EIN's resemble social security numbers -- are used by businesses
to report financial information to the IRS and Social Security Administration.
After you receive your EIN number, 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
credit references.
DO
IT YOURSELF CREDIT IMPROVEMENT
Accurate
and timely information cannot be removed from your credit file unless
there was an extreme mistake, possibly the courts will order it off.
Credit
Repair clinics can't do anything to improve your credit file that
you can't do for yourself
Avoid
companies that want you to pay for credit repair before they provide
any service
It's
illegal for telemarketers who offer credit repair services to request
payment until six months after they've delivered the service.
"Credit
problems? No problem!"
"We
can erase bad credit -100% guaranteed."
"Create
a new credit file - legally."
"We
can remove bankruptcies, judgments, liens, and bad loans from your
credit file forever!" So on and so on etc...
Do
yourself a favor and save your money. Don't believe these statements.
Only time, a conscious effort, and a personal debt repayment plan
will improve your credit file. You see these ads in newspapers,
on TV and on the internet, here them on the radio, get fliers in
the mail and even call from tele marketers offering the same claim.
Its all a scam, everyday companies nationwide appeal to consumers
with poor credit histories. They promise, for a fee, a large fee,
to clean up your credit file so you can get a car loan, a home mortgage,
insurance, or even a job. The truth is, they can't deliver. After
you pay them hundreds or thousands of dollars in up front fees,
these companies do nothing to improve you credit; many vanish into
thin air with your money.
What
to look out for:
They
want you to pay money up front before any services are provided
Do
not tell you your rights and what you can do yourself for free
Recommend
that you not contact a credit bureau directly; or
Advise
you to dispute all information in your credit file or take any action
that seems illegal, such as creating a new credit identity. If you
follow the illegal advice and commit fraud, you may be subject to
prosecution
No
one can legally remove accurate and timely information from a credit
report. But the law does allow you to request an investigation and
reinvestigation of information in your file that you dispute as
inaccurate, incomplete, or adverse and out dated. There is no charge
for this. Everything a credit repair company can do for you, you
can do for yourself and be saving a lot of money doing it. (See
the laws section of this guide under The Fair Credit Reporting Act)
HAVE
YOU BEEN VICTIMIZED?
Many
States have laws strictly regulating credit repair companies, (check
your state laws for the Credit services Organization Act) your States
may be helpful if you have lost money to a credit repair scam.
If you
have had a problem with a credit repair company, don't be embarrassed
to report the company. Contact your local consumer affairs office
or your State Attorney General (AG). Many AGs have a toll free consumer
hotlines. Check with your local directory assistance. You may also
wish to contact the FTC. Although the Commission cannot resolve individual
credit problems for consumers, it can act against a company if it
sees a pattern of possible law violations.
You
may also wish to contact The National Fraud Information Center (NFIC)
they also accept consumer complaints. You can reach them at (800)
876-7060, 9 a.m. - 5:30 p.m. EST, Monday - Friday
If
you believe a company has engaged in credit fraud, send your complaint
to Correspondence Branch, Federal Trade Commission,
Washington, D.C. 20580.
If
you receive a letter, postcard or flier from a company making such
claims contacts 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 violations
developing.
