In Debt? Beware This Repair Scheme

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.