Beware of Credit Scams, Flams, and Dirty Rotten Tricks

Those who are most desperate for credit generally tend to be the most vulnerable to the numerous scams and tricks that bombard the consumer credit market today. The individuals and organizations that push such practices prey upon the ignorance and distress of people in financial turmoil. Credit is big business, so big that corporate advertising and modern technology have devised convincing campaigns designed to persuade people to agree to credit arrangements that may not always be in their best interest. Your most effective defense against such unscrupulous tactics is to aggressively and skeptically question every credit deal that you're offered.

There are as many potential credit scams as there are possible ways to extend credit or lend money. While professional con artists usually practice the more elaborate methods, most common credit scams and flimflams appear – on the surface – to be totally legitimate and innocent. One widespread and familiar example is that of catalog credit cards issued by mail-order catalog companies. Quite legal, these credit cards allow you to buy merchandise on credit from the company's catalog offerings. Usually referred to as 'gold' or 'platinum' cards, they give the appearance of bank credit cards, but they are anything but.

These companies will offer you a high line of interest-free credit (some as much as $10,000) without a credit check. But beware: if it sounds too good to be true it usually is, because the merchandise for sale in the catalogs is greatly overpriced. Often you're required to make a large down payment (perhaps a much as 50 percent of the listed price to cover the seller's product cost), so the company can lose nothing by extending you credit. Therefore, any payments you make later are effectively pure profit. And though these companies claim that there's no interest charge, the interest is actually hidden within their overly inflated prices. Additionally, catalog companies seldom report to credit bureaus, so it's not likely that you'll build any credit even if you do purchase from them.

If you have poor credit, you could be even more overwhelmed by the scores of phony credit repair companies that promise to fix your credit, often for a fee that can literally add up to thousands of dollars. The truth is that no credit repair company can do anything more than what you can do yourself through knowledge, persistence, and patience to repair your credit. And you can do it yourself for far less money than it might cost you through a credit repair company, whether it be bogus or legitimate.

Dishonest credit repair companies thrive under the banner of legitimate financial aid companies, debt counseling services, loan consolidation companies, and quick-fix credit companies. You should therefore be on the lookout for the warning signs when evaluating these organizations. For example, beware of improbable claims and promises in the company's advertising, such as no credit beyond repair; eliminate all negative credit entries including bankruptcy; or get unlimited credit now, no matter how bad your credit history. Or, the company may refuse to give you a detailed, written description of its services and policies before you sign their contract. Other companies may advertise that they can get you a major bankcard regardless of your credit standing (something that you can certainly do on your own by shopping around).

Most credit repair companies draw their clients from lists of court reported bankruptcies, direct mail advertising, telemarketing, or even from collection agencies. Some may surreptitiously claim to be affiliated with the federal government; however, beyond passing laws to protect consumers from unfair credit practices (by means of the FCRA, or Fair Credit Reporting Act), the federal government has no connection with the credit repair industry. Other companies use 'file segregation' (the creation a separate identity for the client) as their legal repair technique, but it is, in fact, a federal crime.

Many states require that credit repair companies be bonded (or, provide for up-front funds in the event that they're sued by clients), that they abide by the FCRA, provide clients with a written contract and inform them of their legal rights, and allow a 3- to 5-day right of rescission after entering into a credit repair contract. Before hiring any credit repair firm, contact the Federal Trade Commission (FTC), the Better Business Bureau, or your state's attorney general's office or Department of Consumer Affairs to evaluate their standing in the business community and whether any complaints have been filed or legal action begun against the company. If at all possible, meet personally with a representative of the company. Have them specify exactly what they will and will not do for you as part of their service, and be sure to get it in writing. And under no circumstances should you pay the company in advance.

Credit screening, also known as pre-screening, is a serious and growing credit problem. Companies use pre-screening as a pre-qualification for credit. With it they can approximate your financial profile without viewing your actual credit report. The only way that you would discover that your file has been pre-screened is if you received an unsolicited offer of credit, or if you inspect your credit report on your own. The words 'promotional' or the letters 'prm' in your file's Inquiries section would indicate that your credit report has been pre-screened. However, when a company does send you an unsolicited offer, they must also provide you with a toll-free number to call to request that your name be removed from the creditor's list if you so desire. You can also directly request that the credit bureaus omit your name from their pre-screening lists.

There are other methods that companies often use for credit pre-screening. For instance, a company in the healthcare industry may maintain a list of individuals who file malpractice suits against doctors and hospitals so that medical personnel can screen out potential litigants. Other organizations may index patients who don't pay their bills or hotel guests who damage or steal property. These lists are frequently made available to other interested parties. Of course, you won't be notified if your name is on such a list and the data is reviewed. Since you're thereby denied your right to question this information, it violates the FCRA and is therefore illegal.

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