Is your credit less than perfect and do you want to improve your credit rating?

If so, you may be the target of a new credit repair scheme called "file segregation."

File segregation turns consumers with past credit problems into lawbreakers. In most instances, "credit repair" companies promise consumers a chance to hide unfavorable credit information such as bankruptcies, judgments, and late payments, by establishing a new credit history. For a fee, "credit repair" organizations instruct consumers to apply for an Employer Identification Number (EIN) from the Internal Revenue service. These EINs, which resemble Social Security Numbers, are used by businesses to report financial information to the IRS or Social Security Administration. After receiving an EIN consumers are then advised to apply for credit using the EIN instead of their social security number.

Despite what many "credit repair" organizations tell consumers, file segregation is illegal. It is a crime for any consumer to misrepresent his or her social security number and it is also a crime to obtain an EIN from the IRS under false pretenses. Consumers may find themselves charged with mail or wire fraud if they use the mail or telephone to apply for credit and provide false information. Consumers may also be sued for civil fraud under many state laws.

Realizing that consumers may unknowingly take the advice of unscrupulous "credit repair" organizations to use file segregation as a means to remedy past credit problems, state Attorney Generals have cracked down on credit repair fraud and file segregation. On February 2, 1999, fourteen State Attorneys General, along with the Federal Trade Commission and the Department of Justice, announced 43 law enforcement actions as part of "Operation New ID - Bad IDea" - a law enforcement sweep aimed at operators of file segregation schemes.

A complete listing of all law enforcement actions brought by the State Attorneys General as part of "Operation New ID - Bad Idea" can be obtained by visiting www.naag.org. A few examples of the law enforcement actions include the following:

• Delaware Attorney General Jane Brady obtained the convictions of Mid-Atlantic Credit Counseling and its operators, Jose A. Dancel and Leslie Dancel. The defendants, operating a boiler room in Dover, Delaware, offered financially-troubled consumers credit repair and debt consolidation services. More than 6,000 consumers paid Mid-Atlantic and its owners upfront fees and lost thousands of dollars, as Mid-Atlantic disseminated useless and illegal "credit repair" information to them. All three defendants entered guilty pleas to a total of thirty felon and misdemeanor counts each and will provide full restitution to all their victims. Attorney General Brady estimates that Mid-Atlantic and its principals may have stolen in excess of $5 million from victims throughout the country.

• Oklahoma Attorney Drew Edmondson filed suit against INFOTEXT, Inc. and JKA Enterprises. INFOTEXT used advertisements such as "Credit Record Problems? Get a Second Social Security Number...Legally" to lure consumers to take part in a file segregation scheme. JKA Enterprises advertised that consumers could take action now instead of waiting seven or more years to obtain credit by using file segregation. According to Attorney General Edmondson, "this type of crime creates several victims. The unsuspecting consumers who want only to repair their credit are victimized, as are the businesses who grant credit based on falsified information and then are forced to increase prices. We, as consumers, must pay the higher prices to make up for their losses."

• Illinois Attorney General Jim Ryan filed charges against Scott Markowitz a.k.a. Scott Marks d.b.a. Creative Technologies; Jamie Andrews d.b.a. Front Line Enterprise; and John Wicynski a.k.a. John Wilson d.b.a. Jody Co. Publishers. All three defendants and their companies advertised, promoted, and sold file segregation schemes over the Internet. Their advertisements claimed that they could improve consumers' credit histories by assisting them in establishing new credit files with credit bureaus using EINs or alternate social security numbers. Consumers who responded to the advertisements paid anywhere from $22.50 to $39.50 to establish new credit histories.

• Lastly, Arizona Attorney General Janet Napolitano obtained a default judgment and order against Christopher Capper d.b.a. Consumer Credit. Capper advertised his file segregation program for $90 in newspapers nationwide. Consumers who ordered Capper's materials received a "Fresh Start" manual and a copy of IRS form SS-4. Capper instructed consumers to apply for a "federal individual taxpayer ID number (TIN)" claiming this number could be used to establish a new credit history. Capper misrepresented to consumers that this procedure was legal. As a result of the suit, Capper is permanently barred from operating or being affiliated with any credit repair business in or from Arizona.

• In a separate action, Attorney General Napolitano entered into an Assurance of Discontinuance with Perry Dusch d.b.a. EMI Consulting. Dusch advertised a "credit repair" kit for $9.95. The kit included instructions on how to acquire a "100% Brand New Credit File," via file segregation - a process he claimed was perfectly legal. As a result of the suit, Dusch is prohibited from operating or being affiliated with any "credit repair" business in Arizona.

So, before you respond to an advertisement from a "credit repair" company claiming that it can help you hide bad credit or bankruptcies, keep the following tips in mind:

• File segregation is illegal. If you use it, you could face fines or even a prison sentence.

• 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. Using file segregation to hide a bankruptcy will only create more problems.

• Be skeptical of companies that offer instant solutions to credit problems. The surefire way to improve your credit is to repay your debts in a timely manner.

• Beware of credit repair companies that require you to pay money upfront. No credit repair company can do anything for you that you can't do for yourself for free.

• Never do business with any credit service organization without first checking with your State Attorney General office or the Better Business Bureau.

• If you feel you have been a victim of a credit repair scam, contact your state Attorney General.

BackForward

©AllAboutCreditRepair.com 2001-2005

The above Consumer Credit Information is provided by the Federal Trade Commission, Washington D.C.