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Credit Crisis Scams

Don’t Fall for Scams Related to the Credit Crisis

The slow down in the economy, the housing bust, and the tightening of credit have forced many people into financial difficulties. Scammers are just waiting to take advantage of these situations. People who are worried about money or losing their homes make lucrative targets for these thieves. You can protect yourself by learning to recognize the facts and the scams profiled in this month’s report.

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Credit Repair Scams

The facts

Your credit report and your credit score have a major impact on your ability to get credit whether it's a mortgage, car loan, or credit card. The higher your score the better chance you have of getting a loan. With the recent tightening of credit, many people are finding it harder to get a loan. As a result, taking steps to improve one’s credit score is very appealing.

There are some steps that you can take to improve your credit score, such as paying bills on time and paying down debt, but no “service” can do this better than you can. (See the Information Edge Report Tips for Improving Your Credit Score.)

Only time, however, can remove accurate information from your credit report. No person or service can change the facts of your credit history. General credit information—good and bad, such as information about individual credit accounts—remains on your credit report for seven years. Information about most types of personal bankruptcy remains for 10 years. Information about a financial judgment against you remains for the longer of seven years or until the statute of limitations runs out.

If there are errors on your report, you can correct them. (How to Dispute Credit Report Errors from the FTC tells you how.)

The scams

Credit repair “doctors” and scammers typically make erroneous and misleading claims about what they can do. The following claims or “services” will not only cost you lots of money—hundreds or thousands of dollars—but can also get you into trouble. Most are illegal.

  • Creating a new credit identity. In this scam, you are told how to apply for an Employer Identification Number (EIN) to use instead of your social security number. Then you are to open new accounts using the EIN. Also called file segregation, this practice is illegal and you could be prosecuted.
  • Erasing bad credit. These claim to be able to remove all bad information including bankruptcies, judgments, liens, and bad loans from your credit report. There's no legal way this can be done. Only time can remove accurate information.
  • Piggybacking. In this scam, you become an authorized user on the credit card of someone with excellent credit. As an authorized user, you can benefit from the payment history of the primary cardholder. This practice could be considered loan fraud. Fair Isaac has announced that the FICO score will no longer include authorized users.

Protecting yourself

If you decide you need help to improve your credit or to manage debt, talk to your credit union about any financial fitness or counseling programs they may have.

The Information Edge Report Tips for Improving Your Credit Score provides some simple tips that can help you keep your overall credit and your credit score in good shape.

When is a Credit Repair Offer a Scam? from the Better Business Bureau provides tips to help consumers spot these scams.

Credit Repair: Self Help May Be Best from the FTC describes ways to improve your creditworthiness and lists reliable resources for no-cost or low cost assistance.

Foreclosure "Rescue" Scams

The facts

When homeowners get behind on their mortgage payments, they are at risk of losing their home through foreclosure. If you start falling behind, the sooner you contact your mortgage company, the better. The longer you wait, you'll have fewer options to prevent foreclosure. The most important thing you can do is to talk to your mortgage lender at the first sign of trouble.

If you hold a mortgage from your credit union, call them to discuss how they can help.

The scams

With the number of foreclosures rising across the nation, scammers have lots of targets. The scammers real objective in offering to help you save your home is to steal the home from you.

These are the most common "rescue" scams:

  • Foreclosure prevention specialist. In this scam, the so-called specialist charges outrageous fees to make a few phone calls and complete some paperwork that homeowners can easily do for themselves. This scam usually results in the homeowner losing the home, since they don't seek qualified help in time.
  • Lease/Buy back. In the many variations of this scam, the homeowners end up signing over the deed to their home while believing that they can remain in the home as a renter and eventually buy it back. The terms of the deal are usually so burdensome that the buyback is impossible, the homeowner/renter gets evicted and the "rescuer" walks away with all or almost all of the home's equity.
  • Bait-and-Switch. In this scam, homeowners sign documents that they believe will bring the mortgage current but in actuality they are signing over the deed to the home. Usually, the first sign the homeowner has been scammed is an eviction notice.

Protecting yourself

As mentioned earlier, the most important step you can take is to contact your mortgage lender at the first sign of trouble. The following resources provide more helpful information. Mortgage Payments Sending You Reeling? Here's What to Do from the FTC discusses how to save your home and how to recognize and avoid foreclosure scams.

Tips for Consumers on Avoiding Foreclosure "Rescue" Scams (pdf) from the National Consumer Law Center describes how these scams work and how to avoid them. Even though this fact sheet was written for older Americans, its information is useful for everyone.

Federal tax refund, economic stimulus payment, and other scams

The facts

Scammers like to pose as the Internal Revenue Service (IRS). The most common scams include phishing and Identity Theft. Although most of these scams appear in e-mail, scammers also have sent faxes and made phone calls.

The scams

In a typical scam, consumers have received an email, supposedly from the IRS, indicating that they are eligible for a tax refund for a specific amount and that the recipient should fill out a refund claim form. The form, accessed through a link in the email, asks for personal information such as bank account or credit card numbers. There are several variations of these emails.

Even before Congress enacted the stimulus package, at least one scam using the rebates appeared. In this scam, consumers received a phone call from a person posing as an IRS employee. The scammer tells the consumer that they are eligible for a sizable rebate and can only receive it by direct deposit into their bank account. Similar scams have come by e-mail.

In another scam, a cover letter and a form are faxed rather than e-mailed. The cover letter indicates that if the recipient provides the requested information, they will receive a tax refund. But if the recipient doesn't complete the form, the recipient may risk additional tax and withholding.

Protecting yourself

Remember that the IRS (or any other government agency) does NOT ask for bank account or other personal information over the phone or through email. Never give out personal information in response to unsolicited phone calls, emails, or regular mail. Hang up on such calls. Do not respond to such emails or mail, and never click on a link in any such emails.

The IRS provides more information about these and other recent tax related scams on their website.

Information Edge links to sites provided by a variety of sources. We review sites for credibility and reliability, but Information Edge, of course, can't control advertising and other links on these sites. We advise ignoring pop-up ads, links to sales of products or services, and the like.