Car shoppers dealing with a poor or bad credit rating are often tempted to try the easiest or fastest option for credit help. It is important for you to keep in mind, however, that there is a wrong way to go about improving your credit so that you can get financing for a car purchase.
File Segregation
Credit repair companies that say they can quickly fix your poor credit so you can finance an auto loan will, more often than not, conduct routine file segregation as part of their services. File segregation is a process of creating a new identity so you can apply for credit and loans without a previous bad credit history being noticed.
The credit repair specialist will tell you to apply for an Employer Identification Number, or EIN, with the IRS. You will then be instructed to use the EIN instead of your social security number on loan and credit card applications. This tactic creates a new credit history file with the reporting agencies, essentially segregating all previous credit issues from your new persona. These instructions should be a giant red flag and represent one of the worst quick credit fixes people employ.
EINs are meant to provide businesses with a way to catalog and report their payments to employees and other contractors to the Social Security administration and the IRS under a cohesive identity. It is against the law to use an EIN as a form of personal identification.
Consequences
When you fall victim to the targeted marketing of “quick fix” credit rebuilding companies, you are making yourself vulnerable to serious consequences. As mentioned in the previous section, it is illegal to use EINs as personal identification. Furthermore, using the mail or the telephone to get the EIN for file segregation constitutes wire and mail fraud in most jurisdictions. By opting for the quick and easy way out of your bad credit situation, you could wind up serving time in prison for defrauding the IRS and Social Security administration. Some states also consider fraudulently requesting an EIN a civil offense which means you could be sued for damages and find yourself in a more serious financial situation than your initial circumstances.
While there are no real immediate bad credit fixes that will make it easier to get approval on a traditional car loan, there is a viable option you should consider.
Dealerships that specialize in offering high-risk applicants in-house financing packages can help you purchase your car and start improving your credit history. The only way to truly fix bad credit is by maintaining good credit habits, like making timely payments toward an in-house financing car loan.
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