Credit Scams: Part 2 – Different Credit Repair Scams and False Claims

by Guest Contributor · 6 comments

This is part two of two part guest post from Debt Lead, who has a debt consolidation website by Kimberly Credit Counseling.  If you’ve missed part one on credit reports, click here.

The credit repair scam artists can never deliver what they promised. Only a deliberate effort for a very long time and a plan to repay your bills will improve your credit record. This section is designed to help you understand the two top credit repair scams that are circulating newspapers, television, magazines and radio.

Credit Repair Scam #1 – File Segregation
If you filed for bankruptcy, you may be the target of a 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 like a good idea, but file segregation is illegal. If you use it, you could face fines or even a prison sentence.

Credit Repair Scam #2 – New Credit Identity
Those that have filed for bankruptcy before may receive a letter from a credit repair company warning you about the inability to obtain credit cards, personal loans, or any other types of credit for 10 years. For a fee, the company promises to help you hide your bankruptcy and establish a new credit identity to use when you apply for credit. These companies also make pitches in classified ads, radio, TV, and the Internet.

When signing up for the service you will be required to pay a fee and may be directed to apply for an Employer Identification Number, commonly referred to as an EIN, from the Internal Revenue Service (IRS). Typically, an EIN is quite similar to a social security number and is used by businesses to report financial information to the IRS and the Social Security Administration.

After you receive your EIN, the credit repair service will tell you to use it in place of your social security number when you apply for credit, inform you to use a new mailing address and obtain additional credit references.

That may sound like a good idea but, using false information is illegal and considered fraud. If you use it, you could face fines or even jail time.

If these aren’t enough for you to steer clear of these credit repair companies, then read on about their false claims.

Credit Repair False Claim #1: You will not be able to get credit for 10 years.
Each creditor has its own criteria for granting credit. While one may reject your application because of bankruptcy, another may grant you credit. Given a new reliable payment record, your chances of establishing additional credit could probably increase as time passes.

Credit Repair False Claim #2: The company or “file segregation” program is affiliated with the federal government.
The federal government does not support or work with companies that offer such programs.

Credit Repair False Claim #3: The “file segregation” program is legal.
It is a federal crime to make any false statements on a loan or credit application. 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 more, 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.

Not all is bad. Know your rights under The Credit Repair Organizations Act which prohibits false claims about credit repair and makes it illegal for these companies to charge you until they have performed their services. It requires that companies tell you about your legal rights.  Credit repair companies must provide this in a written contract that also spells out just what services are to be performed, how long it will take to achieve results, the total cost, and any guarantees that are offered. Under the law, these contracts also must explain that consumers have three days to cancel at no charge.

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  • Credit Card Proection says:

    Thank you or sharing such great post on Credit Card Scams and Frauds.

  • Nate says:

    Isn’t it ironic how when you get strapped for cash, you somehow find a way to scrape enough money just to pay a credit repair company?

    Well, I guess it’s understandable as you try to hang on to those claims that credit repair companies can erase those negative entries on your credit report. The sad truth is there’s no such thing, especially if the entries are accurate. Companies who claim they can are most likely illegal and if you hire them, you’d be doing something unlawful, too.

    If you’ve really been so behind your debt payments or been through the harrowing experience of bankruptcy, some ads and promises or claims from these scams can be very tempting.

    Don’t confuse scam credit repair companies with legitimate credit re-scoring ones. The latter is only available through your mortgage lender; and here’s how you can easily spot the difference: credit re-scoring entails correcting mistakes in your credit report as quickly as possible to raise your credit score; legitimate re-scoring companies won’t try to change accurate negative entries.

  • koplew says:

    Actual topic. Writing is worthy of attention.

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  • Joe @ Simple Debt-Free Finance says:

    Another fine post.

    Thanks for sharing the info.

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