In Debt? Beware This Repair Scheme
By: Brian O'Connell

So you’ve just received an e-mail from a credit repair company saying the quickest path to eliminating debt is through a new identity, complete with new Social Security number and a “clean slate," credit-wise.

Your best move? Find the “delete” button and click it as fast as possible. Better yet, find the “unsubscribe” button on the bottom of the offending e-mail and click on that — thus ensuring you won’t hear from that company (at least via e-mail) ever again.

Here’s the deal. When a credit repair firm says you can escape your debt burden with a new identity, they’re promoting the use of what the credit industry calls “file segregation”— an illegal way to develop a new credit identity, according to the U.S. Federal Trade Commission.

In essence, file segregation promises to blot out negative credit – they usually target individuals fresh into bankruptcy — by creating a new credit identity. Sounds good, right? After all, what debt-burdened individual wouldn’t love a clean slate and no bill collectors haunting them on the phone?

Usually, a credit repair company touting the “new identity” meme will direct you to the Internal Revenue Service Web site, where you’ll be asked to apply for a new Employer Identification Number (EIN)— a number that businesses use to share specific consumer information with key government agencies like the IRS and the Social Security Administration. Once you have a new EIN, the credit repair company invariably directs you to apply for new credit using the new EIN — and not your Social Security number.

But hold the phone. First of all, obtaining an EIN from the IRS under false pretense is a crime. So if you go ahead and get your new EIN and try to use it to obtain new credit, you’re vulnerable to hefty fines and even a prison sentence. In addition, you can’t blame the credit repair service that recommended the file segregation gambit — you and you alone are responsible for obtaining the EIN under false pretenses.

So if you’re approached by a credit repair service about using file segregation to establish a new identity, know that  . . .

  • It’s a federal crime to make false statements on a loan or credit application.
  • It’s not going to deliver on its promise of new credit. Chances are, creditors will find out that you’re hiding your bankruptcy or other significant financial problems.
  • It’s going to cost you money, in the form of potentially hefty fees charged by the credit repair service.

The better tactic? Work within the system to correct your debt problems. Most creditors focus on the past two years of your credit history, so your best bet is to target your debts and pay them off in a steady, timely manner.

That’s the quickest path to long-term debt relief — and to better credit health.

—For a comprehensive credit report, visit the Credit Center.

—For more ways to save, spend, invest and borrow, visit

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