Avoid Falling Victim to Credit Card Scams

Flickr photo by Images_of_Money

Dollar D says: The following is a guest post by Monica over at the DirectBanc blog. If you’re interested in guest posting, why not send old Dollar D an email using the “Contact” link above?

As consumers, we are often inundated with warnings of credit card scams and identity theft, so most of us guard our personal information zealously.  We shred sensitive documents, check our balances religiously, protect our pin numbers, and keep abreast of any financial scams that appear in the news. However, there is a segment of the public that doesn’t pay attention to these details, whether it’s from a lack of financial savvy, carelessness, or naivete.

Why Are Credit Card Scams So Prevalent?

As the economy has worsened over the years, many people have seen their income decrease, or in the case of unemployment, disappear altogether. For others, they have seen their credit score drop as they take on too much credit card debt. These factors have combined to produce a segment of the population that is so desperate for credit, that they don’t always make the best decisions when it comes to financial matters.

Both the Better Business Bureau and the new government agency, the Consumer Financial Protection Bureau, have received thousands of complaints from customers who have been victims of unscrupulous companies that have cheated them out of money when applying for these “guaranteed” credit offers. Most often the complaints revolve around billing issues and false advertising. The consumer unfortunate enough to fall for these scams is left with less money in their pocket and a credit situation that is not improved, or possibly made worse by applying for these cards.

What Types of Scams Exist?

The most common scheme is one initiated by a company that will send offers in the mail stating that you have been pre-approved for a Platinum or Gold Card and that you are guaranteed a large credit limit, sometimes up to $10,000.  They use ambiguous language to make it sound like you are signing up for a real credit card, but in actuality, you are signing up for a line of credit. They may mention the names Visa and MasterCard, but if you read the fine print, you will see that they are not affiliated with these companies, or any banking institution whatsoever.

The company will require an upfront fee for membership, usually $30-$50 and then send you a membership packet. In fact, the card itself is usually paper, not plastic and it can’t be used at merchants or ATMs. To make matters worse, your line of credit is only good for buying merchandise from their membership catalog, and if you don’t pay in full each month, they will charge you interest.

Once you realize that this is not what you had in mind when you joined, they will give you the run around until the money back guarantee period has ended. The company will list a customer service number to call, but you will probably get a pre-recorded message or be forwarded to yet another number to call. Attempts to reach them through email and snail mail will likely end the same way.

Another common scam occurs through phone calls from a telemarketer claiming to be following up on a credit card application that had been filled out recently. They will proceed to tell you that you are approved for a credit card, even if you have had a bankruptcy or foreclosure. The caller will list a host of benefits to you if you apply for their card, including the opportunity to rebuild your credit.

If you agree to apply for the card, they will ask for your personal information, including your account and routing numbers. Once they have that information, they will immediately deduct the $250 to $400 required as a “processing fee” or “sign-up fee.” Once the money is deducted, the offer they promised is either non- existent or you will be sent a package containing a list of companies where you can apply for a prepaid card. Attempts at getting a refund of your money will likely fail, because the company has changed names and phone numbers.

How Do You Avoid Becoming a Victim?

• Never pay up front for a credit card because legitimate credit card companies will not charge a processing fee.
• Do not give out your personal information, especially your account number and routing numbers, over the phone or through email.
• Don’t be tempted to apply for any credit card until you have determined what your needs are, what type of card you can qualify for, and which issuer will offer you the best deal.
• If you have poor credit or no credit at all, apply for a secured credit card that reports your activity to the three main credit bureaus monthly. Used responsibly, these cards will help you rebuild your credit and eventually help you qualify for a regular credit card.
• Question everything, if an offer sounds too good to be true, it probably is.