The credit file segregation scam targets those who have filed bankruptcy. ‘File Segregation’ promises an individual the opportunity to hide unfavorable credit details and information by creating a new credit identity. Many consumers buy into this as a result of their fear that having declared bankruptcy in the past will eliminate the possibility of getting credit.Make no bones about it - ‘file segregation’ is illegal. Those who buy into this scam can end up facing both fines and jail time.

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About file segregation scams

This scam is pitched in newspapers, on TV and radio and over the Internet. These scam companies will contact you to inform you that due to your bankruptcy, you will not have access to loans, credit cards or any other type of credit for ten years. Ten years is the length of time a bankruptcy can appear on your credit history.

These scams promise to help hide your bankruptcy and help you to establish a new credit identity - for a fee. Once you've paid the fee, usually they will instruct you to apply to the Internal Revenue Service (IRS) for an Employer Identification Number (EIN). EINS are numbers used by businesses to report financial information to both the IRS and the Social Security Administration. EINS closely resemble social security numbers.

Once you have received an EIN, the scam service will then instruct you to use this number in place of your social security number at all times when applying for credit. They will further instruct you to use a different mailing address and credit references, regardless if they're valid or not.

The Warning Signs

Like any scam, your first clue that these companies are bogus is in the promises they make. They will usually tell you that:

1. You can legally create a new credit identity

2. That you can never get credit if a bankruptcy appears on your credit history

3. That either they, or the “program of file segregation”, have some affiliation with the Federal Government

4. That ‘file segregation’ is legal
These statements are all patently false, and believing them can put a consumer at risk for fines and jail terms. Firstly, it is illegal to create a ‘new’ credit identity. Secondly, understand that every creditor has different rules and criteria for offering credit. Creditors view a past bankruptcy in different ways, according to their own lending criteria, your present debt repayment history and the length of time that has passed since the bankruptcy was declared. A bankruptcy on your credit history does not automatically disqualify you from getting credit. Thirdly, the ‘file segregation’ program is not legal. It is a federal crime to make false statements on a credit or loan application, to obtain an EIN under false pretenses and to misrepresent your social security number. As well, applying for loans or credit using false information over the telephone or by mail constitutes mail fraud.

The best way to avoid this scam is to ignore any company that even mentions ‘file segregation’. As well, never give false information, use false information or apply for an EIN number for anything but a valid reason.

Do you know if you have fallen victim to one of these types of scams? There are free ways to find out. Fill out one of the many free online credit evaluation forms and/or request free copies of your annual credit reports through the free annual credit report website.