When many people think about credit repair, the idea of shady companies promoting illegal strategies comes to mind. You might have asked yourself, “Is credit repair legal?”  Yes, credit repair is legal, but there are things that you should stay away from.  Here are two strategies that you should avoid when repairing your credit.

File Segregation

One of the most common credit repair scams comes from companies that promise to get you a new credit file.  They of course claim that they are doing this completely legally and that there is no risk whatsoever!

Now, very often they will actually get you a new credit file in exchange for a large upfront fee.  The challenge is that you can’t legally get a new credit file and the person at risk is you!

What they do is have you apply for an EIN or Employer’s Identification Number from the IRS.  They then tell you to use this number as your Social Security Number when applying for credit.  Unfortunately, it is not legal to get an EIN for any purpose other than to start a legitimate business.  Additionally, representing an EIN as your SSN is considered bank fraud and can actually land you in jail.

Do yourself a favor – if any company promises they will either help you or show you how to get a new credit file – RUN!  Regardless of the hype they try to sell you, this practice is in no way legal.

Illegal Piggybacking

Another common practice of unscrupulous companies is to “sell” you becoming an authorized user on a stranger’s account.  They actually have you pay someone you have never met to become a user on their account.  The purpose of this is so that you benefit from their credit history.

FICO 08, the new credit scoring rules, put an end to this practice.  Under the new guidelines, only a parent or spouse can add you as an authorized user.  Done right, piggybacking can be a good credit restoration strategy, but if you attempt to do it the wrong way it won’t help you.