The Truth About Creating An Alternate Credit File

by : Jay Peters

Well... you're right. It is too good to be true but these types of ads are now surfacing again after the Federal Trade Commission launched "Operation New ID Bad Idea" over 8 years ago. This operation targeted (and took down) over 50 credit repair organizations and companies selling consumers both pamphlets and services giving them a brand new credit file under the pretense it was 100% legal and in some cases even claimed it to be a "government sponsored" program!

The con was simple. Companies would target consumers with bad credit and offer to create a brand new credit file for them by substituting an Employer Identification Number (EIN) for their Social Security Number (SSN) along with a new address. EIN's were obtained from the Internal Revenue Service on behalf of the consumer. With the EIN and a new address the companies would either have the consumer apply for credit with the "new information" or the company would apply for them. When the creditor would run the application it would automatically create a new credit file because the computer would be unable to find the consumer in the database due to the new address and SSN.

While there is some dispute among privacy experts as to whether or not this is legal, the FTC's actions at the time were not up for debate. Companies were advertising and luring in consumers in order to have them falsify credit applications by providing new information such as their address and SSN in order to obtain credit. This was a direct violation of the Truth in Lending Act (TILA) and worse yet, the companies were advertising to consumers that this was 100% legal and in some cases claiming it was a government sponsored program. As you'll hear me say often "In reality, nothing could be further from the truth".

Privacy experts will argue that using an EIN or 9 digit PIN (simply a made up number) in place of ones' SSN is completely legal since creditors are on shaky ground asking for your SSN in the first place. In regards to the truth in lending act they will argue that one has to exhibit "an intent to defraud" a creditor. My question "Is concealing ones' adverse credit history intent in itself?" While I am not an Attorney on the matter of credit law I can conclude that if a consumer was to create an alternate credit file using the EIN or PIN method they better be darn sure they never have a problem paying their bills. If they do, they most likely would find themselves in a courtroom with a case involving credit fraud. Which brings me to my next topic.

How To Create An Alternate Credit File Legally

Most consumers are unaware that in addition to consumer credit reports, both Experian and Equifax own and operate business credit reporting services. By creating a business credit profile a consumer can now create an alternate credit file legally. While some creditors such as residential utility companies will not allow you to use business credit in place of personal credit, we have had numerous clients who have successfully used business credit to obtain credit cards, automotive leases and loans. This technique (although controversial) can be very effective when done properly.

The basics of building business credit involve 1.) Setting up the proper structure for your business (i.e. Corporation, LLC, etc.). 2.) Obtaining an EIN as well as a DUNS number (Dunn and Bradstreet). 3.) Borrow and/or buy products and services from vendors who reports to business credit reporting agencies such as Experian, Equifax and Dunn & Bradstreet. While building business credit requires time just like personal credit, don't get discouraged. Remember, when you set out to begin building your business credit you are starting with a clean slate. This is when it becomes imperative that one learn from the mistakes of their past. Remember, in the credit world those who do not learn from their past are (inevitably) doomed to repeat it.