New Credit Card Identity - Beware of This Dangerous Game

Those who file for bankruptcy or with bad credit generally get duped into a credit repair scheme called file segregation, which is a credit fraud scheme. The Federal Trade Commission (FTC) provides information about file segregation to you.

What Exactly Is It

This scheme offers to get rid of negative credit information by giving you a new credit identity. This is illegal and you could be charged a fine or end up in prison. 

Credit repair companies advertise to replace your poor credit report with a new credit identity that could help you apply for credit, which you would not have got with your earlier credit report. On signing up for the paid service, you would be required to apply for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). EINs are Social Security numbers for businesses to report financial information to the IRS and Social Security Administration. 

On receiving your EIN, the credit repair service asks you to use instead of your Social Security number when applying for credit card. You will have to change your mailing address and credit references too. Credit repair service often make a variety of false claims to lure you get a new credit identity.

These false claims and great benefits of a new credit identity, should be enough to you to tell that it is a fraud. 

File Segregation Program

You can't get credit for 10 years after bankruptcy as creditors have specific criteria for granting credit. If your application is rejected for bankruptcy, another may grant you credit even if you filed for it. With a new better payment history, your chances of getting credit will probably increase with time. The file segregation program is affiliated with the federal government but the latter is not involved with companies offering such programs. 

This program is legal and making fake entries when applying for loan or credit is a crime. It is a federal crime to misrepresent your Social Security number and to obtain an EIN from the IRS under false identities. You could be charged with mail or wire fraud if you use the mail or the telephone to apply for credit with incorrect information. File segregation can also constitute civil fraud under many state laws. 

It is illegal for credit repair companies to make false claims or charge a fee before offering their services and have to inform consumers about their legal rights in a written contract that defines their services, duration of process, total cost, and guarantees offered. These contracts must specify that consumers can cancel within three days free of cost. 

You have the right to sue in federal court and recover your actual losses or get company to reimburse the amount you paid whichever is more. You may seek "punitive" damages sums of money to punish the company. 

You can contact the FTC at their toll free no: 1-877-FTC-HELP (1-877-382-4357). Although they cannot resolve each consumer's credit problems they can take action against a company for a number of violations.