More than one in ten Americans have been touched by fraud, and a government study conducted last summer suggests victims of credit fraud should use extra caution when choosing a credit repair service — as they are more prone to fall prey to credit repair scams.
The Federal Trade Commission (FTC) recently released the results of a statistical survey that suggested nearly 25 million American adults — 11.2% of the national adult population — have been victims of fraud. The fourth most common fraudulent activity consumers fell victim to was credit “repair” scams — two million adults paid for such service.
The FTC weighted the responses of 2,500 randomly chosen adult consumers that were asked if they had been a victim of either of the ten top types of fraud reported in the FTC’s complaint database, which are frauds that have frequently led to FTC enforcement actions, according to the study. The telephone survey was conducted between May 20 and June 3, 2003, and asked participants about their experiences during the year prior to the interview.
The survey found members of some minority groups are more likely to be duped than others. American Indians and Alaska Natives were the ethnic group most likely to be victims as nearly 34% had experienced one or more instances of fraud in the preceding year, followed by 17% of African Americans, over 14% of Hispanics; and over 6% of Non-Hispanic whites. Those who anticipated a large change in their incomes in the next three years were more than twice as likely to be victims of fraud over those who expect their incomes to remain stable. And also those with high debt levels are associated with the likelihood of being a victim.
The survey revealed that 33% of fraud victims first learned about an offer or product that turned out to be fraudulent from a printed source, 16.8% from a telemarketing source and 14% from an Internet source — including email and web sites.
The four most common types of fraud were advance-fee loan scams; buyers’ club memberships or bills for unordered publications; credit card insurance scams; and credit repair scams, in that order. Three of these top fraud categories, including credit repair, “often” targeted at those carrying high debt loads or having bad credit, the government agency said.
Credit repairing plays an important role in obtaining credit as inaccurate information on a credit report can push a consumer’s credit score low enough to be denied a loan or even be placed in a subprime loan over a less-costly prime loan. Several studies have highlighted that millions of consumer credit files contain errors, and according to creditrescoring.com, 85% of all lending decisions factor in a credit score to determine what interest rate a consumer will be charged.
Consumers who have trouble obtaining credit because of negative information in their credit records are sometimes targets of fraud, the FTC said, and while only erroneous or outdated data can be removed, “some fraudsters convince consumers that they can help them remove truthful, negative information from their credit report, or establish a new credit record.”
In one main type of credit repair fraud, the seller falsely claims derogatory information on a credit report can be removed and generally requires the consumer to do an upfront payment for the “repair.” Another common scheme involves a consumer paying for information about how to create a new identity to apply for credit and claims this can hide derogatory credit report information from potential lenders. Typically, these scammers direct the consumer to obtain a new personal identification number, often an employer identification number, and to use that when applying for credit instead of the Social Security number, according to the study.
Out of all the categories the FTC provided estimates for, credit repair fraud was the only one that involved a median payment in excess of $100. The median loss for credit repair fraud was $300, which means that 50% of victims of credit repair schemes lost $300 or more. Meanwhile, 25% paid $100 or less for “repairs,” and another quarter reported paying $1,000 or more, FTC said.
The FTC maintains that self-help may be the best method for credit repair as consumers can dispute inaccurate information themselves through credit repositories by providing the adequate documentation.
To avoid being duped, the FTC advises consumers to beware of companies that ask for payment before the service is provided, do not inform what legal rights the consumer is entitled to and what the consumer can do himself or herself for free to clear out inaccurate credit data, those that recommend not to contact a credit bureau directly; and also those that suggest inventing a new credit report identity.
