Recently, I ran across a website that purported to show consumers how to set up a new credit file. Here’s a direct quote: “Now, you can set up a brand new credit file, totally separate from your existing one. This process of achieving AAA credit, with your new credit file, takes less than 30 days & not only is this 100% LEGAL, it’s your RIGHT!”
Just to set the record straight, this is a LIE. There is NO legal means of establishing a new credit identity. For someone with a poor credit history, stuck with high interest rates or unable to get credit at all, an offer like this can seem pretty attractive. However, the creation of a new credit identity is illegal, period. The practice is called “file segregation,” and the scam involves the use of a 9-digit Employer Identification Number (EIN) or Tax Identification Number (TIN) in place of the regular Social Security Number.
If you are tempted by one of these schemes, DON’T DO IT! Even if you are foolish enough to break the law, it’s simply not worth the risk. That’s because it’s only a matter of time before the two separate credit files merge. When that happens, the credit bureaus will place a nice big FRAUD flag on both files, and you will never get credit again for anything — ever. That would be the best-case scenario. Under the worst-case scenario, you could be looking at jail time, civil fraud penalties, or both.
Here’s what the Federal Trade Commission website has to say regarding this practice:
“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.”
Until the government started throwing people in jail for selling bogus file segregation programs, scammers were routinely charging $3,000 and up for this “service.” Nowadays, you probably won’t find anyone stupid enough to offer such an illegal service directly. Instead, the game is to sell eBooks for $25, $50, even $150 that explain how to set up a new credit identity. Naturally, they put disclaimers on their websites that the program is only sold for “information” purposes, and other fig-leaf phrases designed to protect them from legal blowback. This still qualifies as a scam in my opinion, because the true facts are not being disclosed and consumers are being ripped off thereby.
There are also numerous websites promoting a newer variation on this scam, which involves obtaining a brand new Social Security Number. Because there is no EIN or TIN involved, they claim that this makes it legal. Wrong. It’s still fraud. According to the Social Security Administration website, a new social security number (which is sometimes issued in cases of ID theft) cannot be obtained if the intent is to avoid the law or legal responsibilities.
So any attempt to obtain a new SSN for the purpose of creating a new credit file does not constitute a legal or valid reason. Also, what the promoters of this technique neglect to point out is that the original purpose of your Social Security Number is to track your earnings contributions into the Social Security program. If you set up a new SSN, how will you receive the benefits to which you are entitled under the original number? If you have been working for any length of time, this could cost you plenty in the form of lost Social Security retirement benefits.
There are indeed legitimate ways to improve your credit. However, trying to game the system by setting up a new credit file is definitely not the way to go.