There’s no shortage of scam artists who would love to trick and manipulate you into handing over your hard earned money. If you’re currently facing the unfortunate problem of bad credit then you should be especially careful.
The stress and frustration brought about by bad credit can make you feel desperate for relief, which can make you more vulnerable to falling for a “quick fix” credit scam.
To be fair, every company claiming to be able to help you improve your credit is not a scammer. The idea that there are no legitimate, professional services available to assist you with your credit problems is dead wrong.
In fact, there are many credit counseling programs and even some reputable credit repair companies that may be able to genuinely assist you, as long as your expectations are realistic and you don’t expect anyone to wave a magic wand over your credit problems.
However, there are many fraudsters as well. Take a few minutes to review the following 3 common credit scams so that you can protect yourself and your loved ones from becoming one of their victims:
1. Credit “Repair” Scams
All credit repair companies are not scams and, contrary to popular belief, their services are not illegal. There are legitimate companies that can help you to dispute inaccurate or questionable items appearing on your credit reports.
It’s worth noting that even with the legitimate credit repair companies, you’ll still be paying a fee for something you could do yourself at no cost. Of course the same can be said of cutting your hair, repairing your car, or preparing your own taxes. It’s ultimately up to you to decide if you want to try to tackle credit-reporting errors on your own or hire a someone to assist you.
Warning Signs: All legitimate credit repair companies will comply with the requirements set forth in the Credit Repair Organizations Act (CROA). You should be VERY wary of any credit repair company that
- Requires you to make a payment before they do any work on your behalf
- Does not inform you of your rights including the right to dispute items on your credit yourself
- Makes outlandish promises (like claiming they can delete everything from your credit reports)
2. New Credit Identity Scams
Another credit scam that has been around for many years is the “new credit identity” or “new credit file” scam. In this scam, the fraudster pretends to work for a credit repair company and tries to convince you that you have the right to use a tax identification number known as an EIN (employer identification number) to set up a new credit file for yourself.
A different twist on this scam is when a fraudster will try to sell you a CPN (credit privacy number) that can be used to create new credit reports.
You will create major problems for yourself, perhaps even landing you behind bars, if you participate in a new credit identity scam.
First, falsifying a loan application by using an EIN or CPN in place of your actual social security number can easily be considered bank fraud, mail fraud, and even wire fraud. If you were ever to default on an account obtained through this illegal trickery you could be facing some very serious consequences.
Additionally, if the CPN or EIN number you are using in place of a social security number turns out to actually be a social security number which belongs to someone else, then you could be committing identity theft as well.
Warning Signs: If a company tries to convince you that it is possible to create a new credit report or file for yourself through any method, you should immediately run away or hang up the phone. Beware of the term, “File Segregation.”
3. The Credit Sweep Scam
As is the case with new credit identity scams, the fraudsters who promote credit sweep scams often begin by posing as credit repair companies. They then promise that all of the negative information on your credit reports will be removed – quickly and and guaranteed.
There are 2 ways the credit sweep scam is typically performed.
First, the scam artist may actually have inside connections with collection agencies or the credit bureaus themselves. The inside connections may delete negative accounts from credit reports, typically in exchange for a bribe or payment.
The second way is when a scam artist files a falsified identity theft report on your behalf with the credit bureaus. Sometimes fraudulent police reports are filed as well to help strengthen the bogus claim of ID theft.
You should be aware that paying to participate in a credit sweep scam can come back to bite you because you are participating in a crime. Just like using a false social security number to obtain a loan can lead to charges of bank, mail, and/or wire fraud, acquiring a loan after participating in an illegal credit sweep scam can lead to the same types of legal troubles.
Warning Signs: No one other than the bank, collection agency, other furnisher, or the credit bureaus has the ability to remove of any accounts from your credit reports. If someone claims that they have an insider at any of these organizations willing to remove information for a fee, run away FAST.