Bogus Credit Repair

By CBSNews.com staff CBSNews.com staff

February 2, 1999 / 9:31 PM EST / CBS

Every scam has its victims. But this one is different, because it turns the victims into felons. The scam involves getting a new clean credit file by creating a new "you."

It is the latest pitch from those phony repair credit services, reports CBS This Morning Consumer Correspondent Herb Weisbaum.

A raid by federal agents at the office of Standard Business Services in Addison, Texas, Tuesday was part of a nationwide crackdown on bogus credit repair companies. Law enforcement actions were taken against 40 firms across the country that offer to help people with bad credit files get a new credit history.

The pitch is mighty appealing: A simple and sure-fire way to "start a new credit file" and have "AAA credit within weeks".

For a price, they promise to give you the credit secrets that celebrities use, secrets the credit bureau doesn't want you to know.

It's a process sometimes referred to as "file segregation". In a nutshell, for a fee, you'll be shown how to get a second Social Security number that you can use to start a new squeaky clean credit file.

Here's part of a pitch we heard when we called one of the companies being sued by the government: "Due solely to our proven system, Infotext clients across America are being approved for their second Social Security numbers quickly," claims the person on the phone.

It sounds sneaky, but the ads guarantee that it's perfectly legal. Don't believe it.

"Creating a new credit identity may sound like a neat and tidy solution to an insurmountable problem. It's not. And what's more, it's against the law," said Jodi Bernstein of the Federal Trade Commission.

Thanks to the Internet and email, these scams are spreading far and fast. So state and federal fraud fighters called a news conference Tuesday to warn credit-challenged consumers not to take the bait.

"They are not legitimate business people, they are not accounting firms, they are not banking firms, they are not legitimate lending entities. They are scam artists," said Oklahoma Attorney General Drew Edmondson.

So here's the bottom line: there is no legitimate way to get a new credit file or to erase your credit problems. No matter what the ads say, you're stuck with your credit history whether you like it or not.

The only way to beat the system, to create a new credit file, is to break the law. And such fraud is a felony.

Correspondent Weisbaum answers some additional questions:

How could people fall for this. Why would they think it's legal?

Because they're told it is. The ads go to great lengths to say this has nothing to do with scams that offer to repair or clean up your credit files. "This is different." "We've found a loophole that's legal." "The rich folks know about it. Why not you!" They even say it's IRS-approved. It's not.

So what's the bottom line? Are there any legitimate credit repair services?

We asked the feds that. And we were old point-blank they have never seen a legitimate credit repair agency. While there are companies that can counsel you on removing errors from your credit file, there is no legal way to erase bad credit. And remember this: If they ask you for a fee up front before they perform their service (as these companies all do), it's against the law.

What if your problems are caused by erroneous information, a mistake in your credit file?

If you have a mistake on your file, you can handle that on your own. You don't need to pay anyone to do that for you.