Avoid Credit Repair Scams

Often "Credit Repair" companies place ads in magazines, newspapers, TV and on the Internet claiming that they can remove negative information from credit reports. The ads usually carry a version of this message: "Turned down because of bad credit? We can help!" These companies call themselves "Credit Advisors, "Credit Rating Correction Services" or "Credit Consultants." Many of these companies charge hundreds of dollars to "clean up" bad credit reports. But the truth is, these companies can only do what you could do yourself, at no charge.

If you have filed for bankruptcy, you may be the target of a credit repair scheme called "file segregation"- which is illegal. If you use it, you could face fines or even a prison sentence.

What is Wrong in Obtaining a New Credit Identity?

Many people, after they have filed for bankruptcy, 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 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.

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 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. Most likely, they'll tell you to use a new mailing address and some credit references.

The Catch: False Credit Repair Claims

To convince you to establish a new credit identity, the credit repair service is likely to make a variety of false claims. Listen carefully; these false claims, along with the pitch for getting a new credit identity, should alert you to the possibility of fraud. You'll probably hear:

• You will not be able to get credit for 10 years (the period of time bankruptcy information may stay on your credit record). At the same time, 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 getting credit will probably increase as time passes.
• 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.
• The "file segregation" program is legal. 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.

Good credit is important -- a bad credit history can prevent you from getting a loan, housing, or a job. Please, remember, that promises to "fix" your report may be tempting, but they ARE NOT TRUE . Always keep in mind following tips:

1. No one can erase negative information if it's accurate. Only incorrect information can be removed. Accurate information stays on your record for 7 years from the time it's reported (10 years for bankruptcy). Even information about bills you fell behind on but now are paid will remain on your report for these time periods.
2. Credit repair services can't ask for payment until they've kept their promises . Federal law also requires credit repair services to give you a explanation of your legal rights, a detailed written contract, and three days to cancel (this applies to for-profit services, not to nonprofit organizations, banks and credit unions, or the creditors themselves).
3. You can correct mistakes on your credit report yourself. If you were recently denied credit because of information in your credit report, you have the right to request a free copy. Otherwise there is a small fee, unless your state law provides for one free report a year. It doesn't cost anything to question or dispute items in your report. Follow the instructions provided by the credit bureau. The major credit bureaus are: Equifax (800- 685-1111, www.equifax.com); Experian ( 800-682-7654, www.experian.com ); and TransUnion (800-916-8800, www.transunion.com). Contact all three, as the information each has may vary.
4. You can add an explanation to your report. If there is a good reason why you weren't able to pay bills on time (job loss, sudden illness, etc.) or you refused to pay for something because of a legitimate dispute, give the credit bureau a short statement to include in your file.
5. Know that you can't create a second credit file. Fraudulent companies sometimes offer to provide consumers with different tax identification or social security numbers in order to create a new credit file. This practice is illegal and it doesn't work.
6. If you have credit problems, get credit counseling. Debt Consolidation is dedicated to helping people find financial freedom and build a good credit history. If you're ready to obtain a free quote, please, click here to get started.