A few years ago, a guy I know absolutely ruined his credit. Actually it wasn't just ruined. It was decimated. Destroyed. The cows left the barn, in other words. But he told me that he knew of a company that could not only repair his credit for him, but he could also start all over again and form a brand new credit profile for a fee. But he could do it. Or so he said.

Yeah, right. Go look at the moon and call me later.

My friend really talked about two different types of credit repair. The first is the ability to legally challenge any credit discrepancies under the Fair Credit Reporting Act.

The other approach is to create a new credit identity. "Credit substitution" schemes, as they are called, are illegal. And no matter what anyone tells you, they won't fool lenders.

Standard credit challenges essentially follow a few basic steps. You obtain your credit report and examine it for errors. If there are errors or you feel that something is not being reported correctly then there are certain steps you can take to have those items changed.

Usually, if there are mistakes on your report, you should send your corrections directly to the major credit repositories with documentation of your claim. If you've paid off an old collection account yet it stills shows up on your report, send a copy of your payment along with an explanation letter or statement proving your side.

Credit agencies then have 30 days from receipt to determine if in fact what you say is true. If the agency can't verify the negative data on your report within 30 days then they're obligated to remove it from your report. That's why you should also send your correction request via certified mail or other receipted delivery like Federal Express, UPS, Airborne or other similar service. By doing this you'll have proof of when your 30-day period began and when it ended.

There are companies that will do this for you, for a fee. But if you do a little homework, you'll find you can "repair" your credit by yourself if there are errors -- and without paying money.

Still, another way of changing credit histories is by "creating" a new identity. Certainly you've seen the advertisements in newspapers, magazines or on the Internet. "Dissolve past credit" or "Start all over with brand new credit". Many times such advertisements encourage you to falsify who you are, change your name or even apply for new Social Security numbers or a federal employer ID.

There's a question on the mortgage application which asks "have you ever been known by any other name". Those who say "no" but have actually created another identity with the intent to hide bad credit are committing loan fraud.

For more articles by David Reed, please press here.

Published: December 14, 2001

Use of this article without permission is a violation of federal copyright laws.

, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.