Don’t get ripped off by loans that you pay for, instant loan checks in the mail, and credit repair scams.
Advance fee credit cards
Some companies promise to get you a credit card no matter how bad your credit is. Here’s what can happen if you pay them the $200 or more they usually ask for:
- You receive a credit card that’s only good for over-priced merchandise from their catalog.
- You get applications for secured credit cards. A secured credit card offer requires you to deposit $500 in a bank account to receive a credit card with a $500 limit.
- You receive nothing at all.
Secured credit cards from a legitimate bank or credit union can help you re-establish credit. Many banks and credit unions will give you a secured credit card with no upfront fees or charges. If you want one of these, go to your own bank or credit union and apply for one.
Other scams involve credit cards with a low credit limit of $300 or so. The bank making the offer charges you an application fee, a processing fee, annual fees, a rush approval fee, and a high-interest rate that starts the day you open the account. These charges may eat up as much as 90% of your credit line! Remember, if you want a secured credit card, go to your own bank or credit union and don’t pay excessive fees.
Instant loan checks
Instant loan checks often come to you in the mail. They look like a bank check but are really a loan. The letter that comes with the check tells you that all you have to do is sign the check and cash it. When you sign the back of one of these checks and cash it, you are actually signing for a loan and agreeing to make payments on the loan with interest. To find the interest rate, monthly payments, and other costs, you must carefully read the letter and the other papers sent to you with the check.
Consumers often mistake these checks for benefits or reimbursements. After they cash the check, they find themselves with a high-interest loan they didn’t want, didn’t need, and couldn’t afford. The rate of interest charged by the lender is often higher than what is stated in the cover letter. If you can’t make the payments, the lender may ask you to take out a new loan and secure it with your home.
Before signing and cashing a check, be sure you know the following:
- Who sent the check and why?
- Read the letter that comes with the check. Be sure you understand what you’re committing to by signing and cashing the check.
- If you don’t understand the terms, call the sender and ask questions.
- Destroy checks that you don’t intend to use it so no one else can cash them.
Credit repair companies
Credit repair companies promise to improve your credit. They may also promise to get you a loan or a credit card. They lead you to believe they have special ways to get negative information off your credit report. They don’t.
Credit repair companies have no special powers to improve your credit. There is nothing they can do for you that you cannot do yourself. Paying them leaves you less money to pay your current bills and past debts.
Because of the problems with credit repair companies, strict laws were passed to regulate their activities. For example, they must provide a written contract that you can cancel within five days. They can’t require payment in advance, and all promised services must be completed in 90 days. They must also register with the Department of Justice and file a $100,000 bond with the Secretary of State. Be aware that very few credit repair companies follow the law.
Civil Code 1789, 15 U.S.C.A. §1679 et seq.
County of Los Angeles Department of Consumer and Business Affairs. Last change: Apr. 26, 2011