A bad credit score hangs over your head and affects every aspect of your financial life. Not only is there considerable debt involved with the poor circumstances of the past, but that low number may also make it impossible to qualify for auto loans, mortgages, rental apartments and any other type of credit line. With these difficulties comes desperation to improve your credit, and this is where unscrupulous financial companies and scammers step in.
Having bad credit makes you more susceptible to scams partially due to the emotional strain lack of credit or money can have and partially because some companies are designed to target people experiencing these struggles.
What kind of financial options should people with low credit scores avoid?
The following list of options for people with low credit are not scams. They are perfectly legal. However, they are less than desirable for people who are trying to learn responsible financial management and reduce debt while improving their credit score.
1 – Payday Loans
Targeted at people who need a relatively small amount of cash fast, these cash advance loans give money against a person’s next paycheck. The interest rates are exceptionally high and full payment is expected within weeks. Some providers require electronic access to your checking account so money can be deducted automatically when your next paycheck clears.
2 – Poor Credit and Sub Prime Lending
There are plenty of credit cards, car dealerships, rent-to-own shops and financial companies who specifically target people with poor credit because they know the chance of being repaid much more than is borrowed is high. With a low credit score comes much higher interest rates, annual fees, maintenance fees and a shorter repayment times then for people with a history of financial responsibility.
While it may be impossible to get any other type of auto financing or credit card with poor credit, people who want to turn their personal finance troubles around should be exceptionally careful about the fine print on any agreement. No lines of credit or loans should be taken in desperation.
There is also a rise in credit companies who give short-term, high-interest loans marketed as a way of rebuilding a credit score. While on-time repayment of these debts can put positive ticks on your credit report, the interest payments over 30% and the rapid repayment structure almost necessitate the need to take out more loans in order to pay the existing ones. This type of debt trap is great for the companies collecting the interest payments but awful for people trying to escape from bad financial decisions.
What are some of the outright scams that target individuals with poor credit scores?
While there are plenty of poor financial decisions to be made by people with bad credit, and unscrupulous but legal companies preying upon them, there are also true scammers who trick people into giving them money, access to personal information or repaying loans at the usurious rates.
1 – Personal Loan Providers with Illegal Practices
These companies, who may attempt to mimic well-known companies with a similar name or logo style, may contact you through the mail or email with promises to give you a personal loan that can help you rebuild your credit. Careful reading of the terms and all small fine print should throw up some red flags.
• Asking to pay application or processing fees before you get the loan. This is against the law. Reputable agencies role these fees into the loan itself.
• Lack of sufficient contact information or licensing information for the company itself. All financial institutions need to be licensed in the states in which they operate. If the company is not forthcoming with information about who owns and operates it and what licenses they hold, they are probably a scam. Some attempt to operate with a simple toll-free phone number or an email address.
• Any upfront request for personal information such as date of birth, driver’s license numbers or Social Security numbers should indicate the company is a scam. This also pertains to asking for bank account information. While getting a personal loan from a legal source such as a bank or credit union requires identifying information, it should never be given over the phone or through an email to some financial company who solicits customers randomly.
These red flags should also be watched for when a poor credit customer is approached by debt consolidation companies. These may also prey on people in desperate financial shape who seek any promise of relief.
2 – Too Good To Be True Business Proposals
Whether the advertisement for a business opportunity comes over the phone, in snail mail or email, people need to check it out carefully. Many of these promise credit repair or even riches beyond all imagining. The old adage “If something seems too good to be true, it probably is” should be remembered in the face of these attractive come ons.
People with poor credit are more susceptible to these scams because they frequently have no idea or set plan to bring them out of the money difficulties they are in. Just like they may dream of winning the lottery, the dream of financial freedom showcased by these flashy ads seems to be the answer to all their problems.
What should people look for to avoid business opportunity scams?
• Get rich quick promises. No business model will earn you $1 million by next month. The steps needed to build an income should be clearly outlined and explained. Scams make vague promises, use enticing pictures of sports cars and beach vacations and never explain the precise business model until payment is made.
• Any tough-sell tactics used by the company should raise a red flag. These include limited time offers, indications that the price will rise soon and hints that the interested party would be stupid not to act now.
• Any request for money up front should be met with caution. If limited information is given but more is promised when an investment in the business is made, do not get involved. Business ideas in real estate and investing can scam people out of thousands.
• Beware of Ponzi or pyramid schemes. Income should not be tied directly to getting additional referrals or sign-ups.
People with bad credit want to unburden themselves from the stress and limitations of their past financial troubles. With offers that seem too good to be true and unscrupulous but legal businesses preying on them, their susceptibility to outright scams rises. Education about financial options, professional help to build a workable plan and personal dedication to fixing credit problems are needed in order to take control of their personal finance once again.