For a fee that can range from $15 to hundreds of dollars, credit repair companies claim to "clean up" or "fix" your credit record even if you have been denied credit because it revealed problems in paying your bills.  They often advertise that negative information will be erased from your credit report.

Credit repair companies advise you of your right to dispute the accuracy of the credit bureau's file. The firms either dispute the information for you or encourage you to challenge virtually everything in the file, accurate or not. Through this process, the credit bureau becomes so overwhelmed with notices of disputed information requiring reinvestigation on their part, that they may be unable to verify the information within the required reasonable amount of time. Consequently, they must remove it from your file, at least until they can reinvestigate it.

You should know, though, that the credit reporting agency will continue to check all questioned entries even after they have been dropped. If the entries are later determined to be correct, they will be re-entered into your file. Neither you nor a credit repair company can have accurate information removed from your credit report until the 7- or 10-year period allowed by law has expired.

Or a credit repair company may encourage you to create an entirely new credit record by a method known as "file segregation." This usually involves securing an Employer Identification Number (EIN), a number normally used by businesses to report financial information to the Internal Revenue Service. Sometimes the file segregation companies advise you to use a new mailing address and phone number on credit applications as well. Thus your new identity will not be matched up with the old one (the one with the bad credit record).

The IRS warns that it is a federal crime to make false statements on a loan or credit application. It is also illegal to knowingly misrepresent your social security number or to obtain an EIN under false pretenses.