Less than Excellent Credit? Beware of Scams


Less than Excellent Credit? Beware of Scams

The Bottom Line:  It is hard to earn money and build wealth. Financial scams are common; just about anyone can be a target. However, scammers often target the vulnerable, such as older people and those in financial hardships- those who can least afford to lose money. Consumers with bad credit are often targeted with debt collection scams or false promises of help in exchange for a hefty fee. Avoid paying any upfront fees and verify that you are talking to a representative that can actually help your financial situation. If in doubt, don’t give personal information.

Scammers take advantage of people. They prey on a lack of knowledge, hardship, and fear.

Bad credit is generally caused by too much debt and the failure to make timely payments. If your debt is in collections, it’s possible that your creditor will sue you in order to get a public judgment that can lead to a wage garnishment, bank levy, or lien on your personal property.

If you are behind on your mortgage, you could lose your home in foreclosure. It is easy to be taken advantage of when you’re desperate for a solution that could save your home. The scammers use this against you, extending “help” that never materializes in exchange for a fee, which they took and ran away with.

Using a consumer’s financial hardship as leverage, fraud experts combine psychological and hard sell pressure tactics. In order to avoid falling for a scam arm take three steps:

  • Learn to identify the different types of scams and how scammers work. When in doubt, do research about your debt, who owns it and what actions they are allowed to take against you.  Check to see if the company is reputable or possibly a known scammer.
  • Act cautiously. Don’t give out your personal information, especially your social security number.
  • Avoid paying upfront fees. Don’t pay until you get an actual service.

Types of Scams

In general scammers want to take your money away from you.

Some scams target people who are already in deep financial crisis. While it may seem extra difficult to pry money from people who haven’t paid their most important bills, the large number of people who fell for loan modification scams prove the opposite.

Debt elimination scams are similar; they target people with very large consumer debt and tell them that there is a way to avoid paying anything back due to a loophole in the system. The debt elimination scammer sells “educational” materials to show you how you didn’t really take on any obligation when you used your credit card to buy something.

The more desperate you are, the more eager you may be to grab out any lifeline that someone throws your way. It’s your responsibility to differentiate between a true lifeline and someone pretending to help only to take your money.

There are all kinds of financial scams. Here are some common fraudulent schemes that target people who are in financial distress or have had past financial problems:

  • Credit repair scams
  • Collection scams
  • Payday or bad credit personal loan scam
  • Debt elimination scam
  • IRS tax debt collection scam

Bad Credit and Debt Collection Scams

If you have bad credit, then it is quite possible that you have unpaid debt that is in collections. Collection scams are common, preying on people with financial and often personal hardships. A collection agency is required to act honestly and fairly and follow the federal law The Fair Debt Collection Practices Act (FDCPA).

Any of the following is a warning sign that you are likely dealing with a fraudulent debt collector:

  1. The collector threatens you with arrest
  2. Tries collecting on a debt that you don’t believe you ever owed
  3. Is collecting on a debt that is very old
  4. Refuses to give you information
  5. Asks for personal information (Social Security number) or sensitive financial information (bank account  numbers)

The Federal Trade Commission (FTC) offers some advice on identifying a debt collection scam. Here is some advice from the FTC:

  • “Ask the caller for his name, company, street address, and telephone number.
  • Put your request in writing. 
  • Don’t give or confirm any personal, financial, or other sensitive information.
  • Contact your creditor.  If a debt is legitimate – but you think the collector isn’t — contact the company to which you owe the money.  
  • Report the call”. 

Upfront Fees and Financial Scams

One tactic in financial scams is to demand upfront fees. Always beware of any financial product or service that demands upfront fees. While there may be some legitimate reasons to pay an initial fee before receiving a service, such as attorneys who require a retainer, it is a strong warning sign of a potential scam.

Loan modification or debt elimination schemes that promise to arrange or negotiate better terms or reduce your debt depend on scaring you into acting quickly. They are quick to take your money, but never deliver the product, leaving you with a problem that has gotten worse along with the loss of the money you paid them.

Before you start a program, check into the company. Are they reputable and trustworthy? Do they have good recommendations and a track record?

If you are having problems with a mortgage, then check with your servicer or a HUD certified counselor. If a debt collector is harassing you, then learn to verify your debt and ask for the collector to cease communication.

Avoiding scams is actually pretty simple. Arm yourself with knowledge. Search for trustworthy services with a proven track record if you need help getting out of debt or resolving a serious financial problem. Don’t act rashly; take your time to think things through. Get second opinions. Listen to your inner voice, if it tells you to be cautious. Resist high pressure efforts to turn over your private, sensitive information or hard-earned money.