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Credit Building Scams, Part 1Often the people who need credit the most are the target of the worst credit repair scams. While not all scams are illegal, some charge you fees and interest so high that they are clearly preying on the individual with little financial education. Debt Counseling ServicesBe aware these are usually bankruptcy attorneys looking for leads to attract new business. As with any advice you get—consider the motivation of the source. Companies Offering New Credit AccountsOne classic example of this is a company that recommends using a different social security number. This is often called "file segregation". The company attempts to pull your credit file with a slight variation in your social security number. They sometimes use numbers from deceased individuals with similar birthdays to you. If the request comes back "no record" then they have an unused number, and will start building your credit profile with that new social security number. Similarly, they will apply for a Employee Identification Number (EIN), which is also a nine digit number, then start using that number in lieu of your social security number. This is an illegal scheme which will result in giving you a new credit profile—as well as a federal criminal record. You can never have a new credit profile. You can't change history! It is a federal crime to misrepresent your Social Security number. It is a Federal crime to obtain an EIN under false pretenses. Further, you can be charged with mail fraud and wire fraud if you use the mail or telephone to apply for credit while providing false information. Providing false information on a credit application is considered civil fraud against the potential lender, subjecting you to potential civil cases in state or federal court. 900 Numbers for Credit BuildingAnother scam is an offer to call a 900 number—the ones with exorbitant fees attached—to have information sent to you about credit building. That's a thinly veiled offer for secured credit cards. All you receive in the mail is a credit card application—and a large phone bill. You don't need to pay for an application for a secured card, and secured cards aren't the best way for most people to build credit. Consolidation LoansSave money by compiling your bills into one low monthly payment! These offers come in two forms. One is a loan that is secured by the equity in your home, another is a loan with a very long amortization period and high interest, but unsecured. These may or may not be a good idea—buyer beware! Sure you will lower your payments if you extend a few thousand dollars of credit card debt out to 30 years or more. You may even pay a lower annual interest. However, your total interest dollars paid over the lifetime of the loan are likely to be significantly more. Furthermore, this leaves you with open credit cards and available credit lines that can get you into debt trouble all over again. If you do decide to go for a consolidation loan, there are both good and bad deals on the market. Look for home equity with low or no application or annual fees, competitive interest rates and no prepayment penalties. Avoid getting a loan from a company with "consolidation" "credit" or "finance" in their name. These companies are often seen by credit bureaus as consumer credit companies. The mere use of a consumer credit company will lower your credit score. Advance Fee LoansThis is illegal in most states. Someone who proclaims to be a loan broker promises to find you a loan if you pay a fee in advance. Usually the person never performs on this promise, and is never heard from again. Never pay a fee to obtain a loan. Legitimate loan brokers receive their fees when the loan is made from the lender, not the applicant. While you may have to pay a small credit check or appraisal fee, never pay a large fee to someone who promises a loan. |
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