Friday, September 17, 2004
Don't compound credit woes
by falling for ‘helpful' scams
If you're swimming in an ocean of debt, keep an eye out for sharks.
Credit-related scams are among the most common types of financial fraud foisted on Americans, accounting for three of the top four categories of fraud in a Federal Trade Commission survey released last week.
The FTC estimates that nearly 25 million Americans, or 11.2% of adults, were victims of fraud from May 2002 to May 2003.
Consumers who were having trouble managing their debt were more likely to be fraud victims, the FTC said. Only 2.7% of consumers without debt were victimized, vs. 19.2% of those with too much debt.
People with a large amount of debt, “are the most vulnerable of our citizens,” says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, a trade group. “They fall prey to every kind of scheme you can think of.”
Here's a look at the top credit-related scams:
•Advance-fee loan and credit card scams. This was the most frequently reported type of consumer fraud in the FTC's survey. Consumers were promised a “guaranteed” loan or credit card, regardless of their credit history. The catch: They had to pay a hefty fee to get the card or loan.
The FTC says 4.5 million consumers paid money for loans or credit cards they never received. Some paid more than once.
Ads for these loans and credit cards target people with tarnished credit ratings who have been rejected by legitimate lenders and credit card issuers. But these offers are usually scams, Jones says.
Instead of spending hundreds of dollars on a “guaranteed” credit card, use the money to get a secured card through your bank or credit union, Jones says. Secured cards are guaranteed by money in a bank account. Minimum deposits for a secured credit card range from $100 to $500. If you don't pay your bill, the money in your account is used to cover your debt.
If you pay your secured card bill on time every month, you can rebuild your credit record, Jones says. In time, you'll qualify for a non-secured card with a much higher limit, he says.
•Credit card insurance. Everyone worries about credit card fraud and identity theft. If you're struggling to pay your bills every month, the idea that someone might use your card to rack up even more charges is particularly horrifying.
Some companies attempt to assuage those fears by offering “loss protection” insurance to credit card owners. The promoters of these policies say they'll protect you from the unauthorized use of your credit cards.
But this is one insurance policy you don't need. If someone uses your credit card to finance a trip to Paris, federal law limits your liability to $50. Many credit card companies won't make you pay anything if your card is misused.
“It's hard to see a circumstance in which it (credit card insurance) would have much value to anybody,” says Howard Beales, director of the FTC Bureau of Consumer Protection. “We certainly wouldn't recommend it.”
•Credit repair scams. Your credit score can affect everything from how much you pay for a mortgage to your car insurance premiums. A low score can cost you hundreds or even thousands of dollars a year in higher interest rates. It's not surprising that companies offering a way to raise credit scores are doing a land-office business.
But as appealing as these offers sound, they're usually rip-offs, says Evan Hendricks, author of Credit Scores and Credit Reports: How the System Really Works. If the negative information on your credit report is accurate, credit repair clinics can't get it removed, Hendricks says.
Some credit repair clinics use various schemes, such as filing multiple disputes with credit reporting agencies, to try to get negative items temporarily taken off your report. But credit reporting agencies have strengthened systems to counter such tactics. Even if a credit repair outfit manages to get data temporarily removed from your report, it will eventually be restored, Hendricks says.
Many credit repair clinics charge $300 to $400 for their services. You can put that money to much better use by paying off your bills, Hendricks says. If you have a low score, resolve to pay your bills on time, avoid racking up more debt and resist offers for new cards. “Over an eight- to 12-month period, you can dramatically raise your credit score if you exercise patience,” Hendricks says.
Credit-related scams target people who “may be looking for an easy way out,” the FTC's Beales says. “Unfortunately, there isn't one. It takes hard work and persistence to pay down debt.”
USA Today Money
posted by Admin at 6:27 PM
