At least once a month, there is a story in the news involving various credit scams and their victims. If it happens to you, repairing the damage can be very time-consuming and inconvenient, so it's important to avoid credit scams before you become a victim. Credit scams disproportionately target people with low income, minority groups, and older adults. Learning about some of the more common scams and what you can do to avoid them is an important self-defense tool.
- Credit scams are very common and require consumer awareness and diligence to avoid becoming a vicim.
- Fraud can involve simply losing money but many scams are designed to steal consumers' identities.
- Common sense is often the best defense—never respond to anyone representing themselves as an authority over the phone or online that demand payment—especially by gift card.
- If you suspect fraud or believe you are a victim of a scam you can file a complaint with the Federal Trade Commission.
- Credit scams disproportionately target people with low income, minority groups, and older adults.
Credit Repair Scams
Advertisements in newspapers and on TV talk about credit repair services that promise, for a fee, to erase bad credit history or repair bad credit. The problem with the promises made by these credit-repair companies is that no one can legally remove negative credit information from a credit file. Most of the time, these companies collect thousands of dollars from people and simply vanish with the money. The only legitimate way to repair bad credit is by repaying any debt owed.
If you can't afford to pay off all your debt, contact your creditors and ask about setting up a payment plan for your debt. If you have problems setting up a payment plan with your creditors, contact a credit counseling organization. You can get a free copy of your credit report each year from each of the credit bureaus at annualcreditreport.com.
If there are errors on any of your credit reports, contact the consumer reporting companies (Experian, Transunion and Equifax) directly. Alternatively, if you don't have the time to reach out to the three credit agencies and are willing to pay a fee, any one of the best credit repair companies can do so on your behalf.
An advance-fee loan scam typically involves a lender making false promises to arrange low interest. The lender often asks for upfront fees from applicants to arrange these bogus loans. Sometimes, the lender collects information from applicants and applies for a legitimate loan. Later, the lender tells the applicant that the loan was declined and they disappear with the applicant's money and identity.
No one with poor credit can get low interest loans from legitimate lending institutions. Because they are unsure about the chances of getting their money back, creditors are wary about issuing low interest loans to applicants with poor credit. In general, the only way to get a loan if you have poor credit is with higher interest rates.
Credit Insurance Scams
Credit insurance is offered by loan and credit card companies. The purpose of the insurance is to protect debtors who cannot pay off their loans or lines of credit due to death, disability, unemployment or health-related emergencies.
There are fraudulent companies that offer credit insurance at a lower premium loan institutions would typically offer. The problem is that these fraudulent organizations collect premiums and never fulfill their obligation when the client is legitimately unable to pay off a loan. To protect yourself, make sure that you thoroughly research a company and that when you sign loan papers you make sure that credit insurance is optional and that a cancellation policy exists.
Individuals can set up automatic payment schedules with different companies so that various bills are deducted from bank accounts or collected from credit cards. This method of bill payment is very convenient and also very risky.
Many situations have occurred in which the companies increase monthly charges or introduce new charges without notifying their clients. You have to be very diligent when it comes to bills and credit card statements. Taking some time to carefully crosscheck statements against known expenses might be a bit inconvenient, but it will help you notice any discrepancies sooner, which might go a long way in successfully disputing those payments.
Identity theft occurs when someone illegally obtains sensitive information, like credit card numbers and Social Security numbers (SSN), and proceeds to take out loans, apply for credit cards, or make purchases. When the scam artist defaults on a loan, the real owner of the identity is contacted by creditors and held responsible for the loans. To avoid being a victim of identity theft, it is important to take good care of personal information. Some preventive measures include:
- Review credit reports at least once a year. The three consumer reporting agencies are required by law to give you a free copy of your credit report once a yeary. Just go to http://www.annualcreditreport.com/ to start the process.
- Shred all documents that contain information like account numbers and Social Security numbers. Buying a shredder does not cost a lot and it will save you a lot of trouble.
- Consider utilizing one of the best credit monitoring services to watch for suspicious activity on your credit reports. Several of these services also offer identity protection tools.
- If you are already a victim of identity theft, you can find instructions for filing disputes by going to the Federal Trade Commission website.
File segregation is a scheme that offers a new credit identity to someone who has bankruptcy on their credit record. Usually, the scammer offers the victim a new Social Security number or Employer Identification Number (typically used by businesses) and instructs the victim to fill out loan documents using the new numbers. What the scammer does not tell the victim is that obtaining a new credit identity is illegal and punishable by law.
The scam artist lures victims by saying that having declared bankruptcy makes it impossible to obtain loans and credit cards for up to 10 years. While a bankruptcy will indeed remain on your credit report for 10 years, you continue to have the possibility of obtaining loans. Different legitimate creditors have different criteria for choosing clients and they might offer a loan to at a slight higher interest rate than normal to someone who has declared bankruptcy.
Phishing is a fraudulent process of attempting to acquire sensitive information, such as usernames, passwords and credit card details, by posing as a trustworthy organization in an email or by duplicating legitimate websites and luring unsuspecting victims into entering their sensitive information. Here are some protective measures you can take:
- Beware of websites that pop up from an email, asking for sensitive information.
- Most banks and credit institutions have legitimate websites. If you must conduct business with them online, go directly to the website by typing it in and don't follow any links you are unsure of.
Phishing and spoofing scams often pop up around tax season and can involve fraudsters claiming to be from the IRS and demanding payment for unpaid taxes—often in the form of sending a gift card. The IRS has stated that they do not initiate contact with taxpayers by phone, email or social media and only communicate through the U.S. Mail.
If you are already a victim of phishing or you suspect that a website you visited is fraudulent, contact the genuine company and freeze your accounts if you have to. Also, make sure to change your passwords to all your online accounts.
Some fraudulent websites offer the secret of success or a laundry list of legitimate work-at-home jobs. Sometimes, a company offers a position in the company and a "get rich quick" promise. Often, the company requests fees and specifies that the fees be paid online with a credit card.
The company then steals the credit information and uses it for fraudulent purposes. If you need a list of work-at-home opportunities, there are websites that offer them free of charge. One fact that you must always remember is that no legitimate company will charge a fee for hiring you.
Online Dating Schemes
As weird as it sounds, fraudulent activities are also perpetrated by online dating sites. The FTC has estimated that consumers lost over $200 million to online dating schemes in 2019. These sites usually ask for a fee for their services, and in addition to collecting fees, they steal information about the user of their services. Legitimate and fraudulent dating websites exist, so always conduct a thorough investigation before choosing one and paying for these online services.
This scam occurs when a consumer receives an email message notifying them of a lottery or contest that they may not recall entering. The email often requires the consumer to pay a minimal fee by using a credit card in order to access the winnings. The scam artist collects the fee and credit card number and disappears. No legitimate lottery operation will ask a winner for a fee or for information such as a credit card or bank account number.
The Bottom Line
Recovering from the effects of a credit scam can be slow and very tedious. As the saying goes, an ounce of prevention is worth a pound of cure, so always be sure to protect yourself and any sensitive information. Remember also that these types of scams target people with low income, minority groups, and older adults disproportionately.
For more information about various credit scams, how to protect yourself from them and what to do if you are a victim of a credit scam, visit the Federal Trade Commission website. You can also file a complaint with the FTC online or by phone.