How to Avoid Common Credit-Repair Schemes


There is no shortage of credit-repair firms that promise down-on-their-luck consumers a major credit card for a small fee. That way they can use the card to help rebuild their credit. But before you sign up for such a deal, make sure to read the fine print.

First some facts. Make no mistake, we’re headed toward a bull market in credit card delinquencies, and with it, a heightened demand by down-on-their-heels consumers for quick access to new credit cards – shady or not.

According to Innovest Strategic Value Advisors, credit card issuers reported $41 billion in defaulted credit card debt in 2008, with estimates that the number will rise to $96 billion by the end of 2009.

But consumers who lose their credit cards won’t likely stay on the sidelines long without their plastic. Hence the rush to repair credit by, among other strategies, getting a new credit card and using it to rebuild their financial reputations.

In that type of stampede, scam artists can thrive, and consumers best defense is good information. In this case, that means knowing what kind of scams card providers are brandishing:

Hidden Fees – The Federal Trade Commission is already on the hunt for card issuers who hide fees from consumers. One favorite tactic is to offer a credit card with (for example) a $300 limit, backed by a major carrier and with no up-front fees.  Sounds good, right? But when you get your first card statement, take a deep breath, as card issuers claim $150-$200 in assorted application, processing or monthly maintenance fees.

Fudging the Credit Number – Shady card issuers have also been known to issue a credit card to consumers with a “teaser” credit limit of (for example) $3,250. But consumers aren’t in on the tease. Usually, that limit isn’t valid for the first 90 days – a time period where the consumer’s card spending habits will be rigorously reviewed by the card issuer. If the card company doesn’t like the spending behavior it’s seeing, they could pull the credit limit, and even cancel the card.

The Old “Bait-and-Switch” – Some card issuers will promise a credit card where the debt incurred on an old card can be transferred over to the new card (known in the industry as “charged off debt”) and the credit report agencies will be notified that the debt is satisfied. Again, that sounds like a good deal – at first glance. The FTC is finding that consumers who signed up for the deal were locked into a debt repayment program, and that they couldn’t get their credit card until as much as 50% of their old credit card debt was paid off.

These scams are above and beyond typical card grifts, like when card companies promise a card rate "as low as 3%" – but the consumer never gets near that rate after they sign up for the card.

If you’re a consumer who needs to repair some bad credit, be aware of these “too good to be true” deals. If you elect to go forward with a new card, read the fine print, don’t fall for teaser rates and insist that all fees are disclosed upfront.

Also, to better compare card deals, visit’s Credit Card Center.

That kind of due diligence won’t guarantee you won’t be the victim of a credit card fraudster – but it sure reduces the odds.

—For a comprehensive credit report, visit the Credit Center.

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