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16. Avoid "New Credit File" Scam

By know, you have undoubtedly seen many ads and some Spam e-mail regarding a "fool-proof" way to create a "new credit file", otherwise know as "File Segregation".

What is "File Segregation"?

File Segregation, (known as 'Getting a New Credit File') is the process of obtaining a separate identification number, usually a federally issued EIN (Employer Identification Number) or TIN (Taxpayer Identification Number), and using it in place of your Social Security number when applying for credit. This is intended to shield an applicant's true credit history from an inquiring agency. So far, this may sound like a reasonable idea.

So, what's the scam?

The are many, many sites and scammers offering File Segregation Services, and each in turn is shut down by government investigators, but not before many people fall prey to the site operators first. What these operations are trying to do is to give you a "new identity". You pay their fee and sign up for their services. Then you are directed to apply for an Employer Identification Number. Sometimes, they even provide you the forms and some instructions on how to fill them out.

When you get the EIN, you will be told to use that instead of your Social Security number when you apply for credit. They'll probably also tell you to use a new mailing address.

OK, so what's wrong with "File Segregation"?

Basically, some of the acts to required accomplish this new credit file are ILLEGAL!

First, you are applying for an EIN, when in fact you have no intentions of using the number provided by the IRS for the intended purposes. Since the form requires you to sign it under penalties of perjury, well, you can see the problem there.

Second, under the Federal Trade Commission's Credit Repair Act, it may be a felony to use a false identification number.

Third, if you use any means of interstate commerce, such as the mails, telephone, or fax, to submit an application for credit, you can also be prosecuted for mail or telecommunications fraud.

And finally, if a creditor is damaged (they lose money) because you defaulted on a loan obtained by an application with false statements, they can sue you for fraud as well.

Though it may be tempting and a quick fix for your present credit problems, it could cost you thousands of dollars and maybe even jail or prison time. And while you will have a second file for a while, it will not take very long for the credit bureaus to catch on. This scam has been around long enough that the credit bureaus are quite familiar with it, as soon as they detect it, they will merge the real and the "new" files, with an additional notation that you are using a false SSN.

17. How to Build a Good Credit History

Are you thinking of buying a house? Do you want to buy a new car to replace that old wreck? Trying to get insurance on you home, auto, or life? In each of these situations, what's on your credit report will determine if you can get a loan or insurance and what rates you'll have to pay.

If you're trying to build or repair your credit history, you have a daunting but not impossible task in front of you. Lots of people have been where you are and today they have good credit. With time, discipline, hard work, and by taking the proper steps, you'll be able to build a good credit history too.

To build or rebuild your credit history you need to take certain steps:

• Develop a budget and live by it.

Whether your building credit for the first time or rebuilding credit, you need to know how much money you have coming in each month and how you're spending it.

Start by listing your income from all sources. Next list all fixed expenses (rent, mortgage, car payments...). Finally list all of your variable expenses (entertainment, recreation, clothing...) no matter how small they are.

Writing down and tracking your expenses will help you to understand your spending patterns and you'll be able to see where you can save money by making lifestyle changes.

• Open a checking account and use it responsibly.

Lenders want to know that you have a relationship with a financial institution and that you have a checking account available to pay your bills. Don't overdraw your bank account; in addition to possible damaging your credit record, you'll be charged fees.

• Pay your current bills on-time and pay them in full.

Paying your bill on-time puts positive information on your credit record. Late payments or missed payments count against you.

• Review your credit report annually.

Contact Equifax, Experian, and Trans Union to get copies of your credit report. You should get a copy of your credit report from all three reporting agencies because some creditors don't report to all three agencies. If you're a member of a credit union, check to see if your credit union offers discounted credit report ordering for its members.

• Fix any errors on your credit report.

If you find errors on your credit report, contact the credit reporting agency and the creditor (in writing) to get the errors fixed. Check your credit report to make sure that negative information like late payments, delinquencies, liens, and judgments against you have been removed after 7 years; bankruptcies should be removed after ten years.

• Apply for a credit card.

If you're rebuilding your credit history, consider applying for a secured credit card. To get a secured credit card, you'll need to deposit funds with the credit card issuer and your credit limit is usually equal to the amount you deposit. A secured card can be used the same way as an unsecured card and your timely payments will help to improve your credit history.

• Apply for a department store or gasoline card.

These cards are usually easier to get than major credit cards and they come with smaller credit limits.

• Establish an account at a credit union and take a loan out on it.

This is a secured loan. You'll have to pay interest on the loan, but if your payments are reported to the credit bureaus, the small interest fees will be worth the positive information that is added to your credit record.

• Don't max out your credit cards.

Maxing out your credit cards can hurt your credit score. Try not to use more than 30% of the credit you have available to you. Part of your credit score measures the amount of credit that your have available to you and how much you're using. The more credit you're using, the more negative impact on your credit score.

• If you get into trouble with your credit, get help.

Don't wait until creditors send your accounts to debt collectors. If you can't make a payment contact the creditor and make arrangements to make the payment.

18. Keep Accounts Active

Once you've successfully received new lines of credit, it is important to have some activity going on each month. We don't suggest you pile up large debt-- maybe $50 dollars or so in a balance. Pay the minimum when the bill arrives even though it will cost you a little in interest charges. And pay it on time. This is what future loan officers and other creditors want to see. (Inactive accounts with a zero balance aren't displaying a tendency to handle existing debts.)

You need to display at least one year of positive credit habits to be taken seriously, especially by a mortgage company. Start now or you will always be a year or two from a good credit standing.

19. Secured Credit Cards

Make sure the secured card you choose to help you rebuild your credit:

• Reports the credit card limit you have (even if it's only $200).
• DOESN'T report that the card is a secured card.

Reporting the balance

Credit scores take into account the total amount of credit available to you and the current balance you have on your cards. They use this to calculate your debt ratios which is:

Current Total Balances/Current Total Credit Limits = Debt Ratio.

If they are not able to do this calculation, they will just guess what the limit is and this is going to be your current credit card balance or 100% of your credit limit used. Remember in the credit scoring article, the scoring model likes to see 25% or less of your credit limit used.

Reporting that the credit line is secured

If you get a card which reports to the credit bureaus that it IS a secured card, your credit score will also take a hit, even if you are paying on time.

20. Negotiating Your Credit Rating

• You should always push for a Perfect Pay Rating. Your final goal in negotiating your credit rating is to get the creditor to list your credit rating after the settlement as "Paid as Agreed" or "Account Closed - Paid as Agreed". Anything other than this listing will have a negative effect on your credit report.
• Creditors make their profits by collecting from their customers, not by reporting negative credit information. Because creditors recognize this "catch-22" situation, they will often agree to delete any negative listing upon settlement of the debt. You have to realize that creditors won't try to ruin your credit rating as a personal vendetta. It's strictly business. If it pays them to collect from you and restore your rating to perfect, they will do this. Talk to them in terms of money, not principals or morals. Something along the line of "I know you would love to receive the $3000 I owe you, but it will not help my credit report if you can't change my rating to 'Paid as Agreed'. All I have is $3000 and I will pay it to other creditors who will agree to change my credit rating in writing."
• Collection agencies will always agree more readily to delete the negative listing than banks or credit cards. Why? They can change their rating, no problem, but you are still probably stuck with the original creditor reporting you late. And who cares if you have a "Paid As Agreed" collection account: no matter what the rating, every collection account is a negative mark. It's no skin off their nose to change it, and of no use to your credit.
• You need to get the collection agency to agree to remove their listing entirely from your report and have the original creditor change the rating to "Paid As Agreed". At the very minimum, you are within your legal rights to demand the removal of the collection account from your report.

  Some collection agencies will tell you they have no power over what the original creditor will do regarding your credit. To some extent, this is true. However, both the collection agency and the creditor want their money. If collection agency gets paid, so does the creditor, therefore it is to their advantage to cooperate. And baloney if they tell you they don't know how to get a hold of the original creditor: did the account magically appear on the collector's desk? No. The collection agency was hired. Explain to the collection agency if they can get a written agreement from the creditor, you will pay them their money, or you will pay a more cooperative creditor with the only money you have left, and they get nothing.

• Remember, though, not all collections result from credit cards. Doctor's bills cannot appear on your report. But collections resulting from these accounts can. In the case of such collections, there is no duplicate negative listing, since the original creditor is not allowed to put a listing on your account, so this collection may legally remain on your report.
• Many creditors, though, have an agreement with the credit bureaus that they will not allow a negative listing to be deleted upon settlement. While this is true, the creditor can just tell the credit bureau that they reported your rating inaccurately, not that it was due to settlement. Anything a creditor reports, a creditor can change. If this wasn't the case, creditors couldn't change erroneous information they may have placed on your account by mistake, and find themselves in trouble with the FTC. In most credit organizations, there are dozens of people with the authority to make changes on the credit report. Larger creditors, such as huge credit cards or banks will require more pressure before they will agree to delete a negative listing, but virtually every creditor will acquiesce with the right amount of persuasion.

If you have to accept an imperfect credit listing as part of your settlement

You may find that some of your creditors are willing to hold out longer than you are before agreeing to delete the negative listing from your file. It may seem that they are unwilling to delete the negative listing under any circumstance. Once again, let it be said that every creditor will eventually give you what you want if you speak to the right person, are patient and persistent, and make the right offer. But if you are on a time-line, and your attorney can't get them to agree to full deletion, you have a couple of other options:

List the account as "Paid" only. You may counter-offer that the creditor list the account as "Paid" rather than delete it altogether. This is a true indication of the status of the account and many creditors will concede and agree to this wording. A "Paid" status is still very negative for a collection account or an account that will show "Paid Charge-off" or "Paid Repossession." You should insist that the account show "Paid" only and that all other negative notations (such as "Charge-off," "Repossession," late notations, or "Collection") are deleted at the same time. A simple "Paid" notation on a regular trade line is neutral and should not hurt your credit.

List the account as "Settled" only. You may counter-offer that the creditor simply list the account as "Settled" rather than delete it altogether. "Settled" is an inherently negative listing but not as negative as "Paid Charge-off." Don't agree to a "Settled" listing until you have exhausted all other possibilities. "Settled" will still trigger a credit denial. You should only agree that the account show "Settled" if all other negative notations (such as "Charge-off", "Repossession", late notations, and "Collection") are deleted at the same time. If you agree to a "Settled" notation, you must continue to work hard to delete the notation through the credit bureau dispute process.

List the account as "Paid Charge-off" or "Paid Collection" or "Paid was 30-, 60-, or 90-days late." This will be the creditor's first choice, and your last choice, of what to place on your credit report once you have paid. These notations are almost as damaging as showing the same debt unpaid. It is very common, though, for an account to be deleted (through credit bureau disputes) once it has been paid. The creditor now has no compelling reason to keep the negative listing on your report. For this reason, it is still usually a good idea to settle even if the creditor won't budge on deleting or positively modifying the negative listing.

Iron Mill News Service Credit News

Note: Send all debt settlement letters via "Certified Mail return receipt requested" and keep a copy for your records and send one copy to the original creditor.

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