Is a New Credit File Under an EIN Legal?
File Segregation as a Form of Credit Repair
Oct 31, 2009 Candice Gillingwater
Credit repair organizations have promoted the use of the EIN (Employer Identification Number) to create new credit profiles for consumers with bad credit since the 1990’s. This practice is dangerous for both the consumer and the credit repair company facilitating it.
How New Credit Files Work
When an individual applies for a loan or line of credit, the lender will perform a credit check on the Social Security Number (SSN) provided. All credit accounts linked to that number will form a credit report which the lender may then review in order to make an educated decision about whether or not the consumer in question should be extended the loan or credit line.
If a consumer provides the lender with an EIN rather than a SSN, this leaves the lender unable to pull a credit report on the consumer. Should the lender decide to offer the individual the loan, the account will then be reported to the credit bureaus under the EIN rather than the individual’s legitimate SSN. This creates a new credit report that can be viewed by any other company that pulls the consumer’s credit in the future. The individual is then participating in file segregation by having two separate credit profiles.
The Federal Trade Commission has released a formal statement on why consumers should not participate in this practice.
Is Establishing Credit Under an EIN Legal?
Establishing a new credit report using an EIN is perfectly legal- for businesses. This allows small business owners to keep their personal credit and business credit separate. It is also a necessary requirement for businesses that intend to hire employees.
An EIN is not intended to be used as a method of credit repair. It is intended to be used as a method to correctly report information to government entities and maintain financial reports on a company. To acquire an EIN, a consumer would be fraudulently claiming to be a business or sole proprietorship and thus participating in illegal activity.
Legal Consequences of File Segregation
In October of 1999, the Federal Trade Commission released a statement concerning the “Operation New ID: Bad Idea” program that was initiated to combat the practice of using any number other than a SSN to establish credit. The statement included details of charges brought against sixteen defendants on the grounds of promoting new credit files as a method of credit repair.
Although the punishments levied for the sixteen defendants in the case were mild at best, the greater purpose was clear: the practice is illegal and the government will take action to prevent it.
Individuals should remember that it can be difficult, if not impossible, to switch back to a legal credit report after utilizing a fraudulent one for any length of time. In addition, a clean slate is not always more desirable than cleaning up a damaged credit report. In most cases it is just as challenging to get a loan approval with no credit as it is with bad credit.
File Segregation and Identify Theft
If consumers need any additional motivation to refrain from fraudulently creating a new credit file they should consider this: identity theft can be impossible to clear up on a fraudulent credit file. Given that the issue of identify theft is a steadily growing problem, provisions have been made by the credit bureaus to clear consumers of financial obligations that arise as a result of identity theft.
If, however, an individual cannot provide the credit bureaus with a valid SSN for fear of having a alternate credit file discovered, he may discover himself at the wrong end of a lawsuit over debts he did not accrue. Fighting the lawsuit, of course, will result in the discovery of the illegal file segregation
In the end, it is far less problematic to make payments responsibly and become proactive about credit repair than to attempt to create a new credit file illegally.
File Segregation is Illegal
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