How to avoid it: The FTC advises that you not use any firm that guarantees to stop foreclosures, tells you to stop talking to your lender, collects a fee before services or accepts payment only by cashier's check or wire transfer. You also should see red flags if the firm persuades you to lease your home and buy it back later, or tells you to make your mortgage payments to them instead of your lender.
Alternative advice: If you are having mortgage trouble, the FTC recommends talking first to your lender about renegotiating payments. Also, contact a credit counselor through the Homeownership Preservation Foundation, a non-profit organization that offers personalized assistance to help at-risk homeowners avoid foreclosure. Their 24-hour, toll-free number is 888-995-HOPE. The FTC offers foreclosure advice on its Web site: www.ftc.gov. The Illinois attorney general's office offers a homeowner's help line at 866-544-7151, which provides referrals to Housing and Urban Development counselors.
Make bad credit disappearHow it works: The companies claim to be able to erase your bad credit or, in some cases, create a new credit identity. You pay them and, you guessed it, you get nothing.
How to avoid it: The FTC warns not to use any company that wants you to pay upfront for credit repair. Under the Credit Repair Organizations Act, companies can't require you to pay until they have performed the promised services. Other red flags: If a company doesn't tell you what your free options are, recommends that you not contact the three major credit reporting agencies, tells you they can eliminate bad information on your report or suggests you create a new identity by applying for an employer identification number to use instead of your Social Security number.
Bottom line, there's no quick fix to repairing your credit. It takes time and requires repayment of debts. Anything a credit repair company can do legally, you can do by yourself, the FTC says. For a detailed guide on how to repair your credit yourself, go to www.ftc.gov.
Let's make a dealHow it works: The company claims it can arrange to pay off your credit card debt for 10 percent to 50 percent of what you owe. The firms, some of which claim to be non-profits, say that any negative entries can be removed from your credit report through their debt-negotiation program, according to the FTC. They tell you to make payments to them instead of your creditors, and may promise to hold your money in a special account to pay your creditors on your behalf.
In reality, there's no guarantee that a creditor will accept partial payment of the debt, the FTC says. In addition, if you stop making payments to the creditor, late fees and interest usually will accrue, possibly causing your original debt to double or triple. This could result in negative information on your credit report, a lawsuit from your creditor, garnished wages or a lien on your home.
How to avoid it: Before you do business with any debt-negotiation company, check with your state attorney general's office, the BBB and your local consumer protection office to see if there have been any complaints filed against them. For help locating a credit counselor, try the National Foundation for Credit Counseling at www.nfcc.org or the Association of Independent Consumer Credit Counseling Agencies at www.aiccca.org.
IDtheft@crooks.comHow it works: Sometimes, crooks send you an e-mail claiming to be from your bank asking you to verify account information. Or they may claim to be writing from the IRS about an unclaimed economic stimulus payment or refund. The e-mails often look legitimate and have real-looking logos and references to legitimate companies. In any case, they prompt you to reveal personal information—Social Security number, account number, etc.—and use it to steal your identity.
How to avoid it: The FTC says that legitimate companies do not ask for personal or financial information via e-mail. The state attorney general's office has an identity theft hot line at 866-999-5630, which offers tips to avoid identity theft and resources for people who have had their identities stolen.
Be an armchair millionaireHow it works: Three popular versions of the work-at-home scam involve medical billing, envelope stuffing or craft assembly. In the medical billing scheme, you're offered the chance to make a lot of money from doctors who want to outsource their billing. They tell you that no experience is required and that they will provide you with clients. All you have to do is invest $2,000 to $8,000, according to the FTC. In reality, you have to sell the service and, the FTC says, few consumers who purchase the business opportunity are able to get it off the ground.
The assembly or craft work scam encourages you to invest hundreds of dollars in equipment or supplies, or requires that you spend hours making goods for a company promising to buy them. But after you've purchased the supplies and completed the work, the phony company doesn't pay you. The FTC says many consumers have had companies refuse to pay because the work didn't meet "quality standards." The standards are impossible to meet, and consumers are left with goods that they either have to sell themselves or take a loss on.
"They've been around since the 1930s," said the BBB's Bernas. "People keep giving them business."
How to avoid it: The FTC says legitimate work-at-home programs should tell you in writing what's involved in the package they're selling. The agency says you should ask questions to determine what tasks you will have to perform, whether you will be paid a salary or commission, and when you will get your first check. The FTC also recommends you check the company out with the attorney general's office and the BBB to see if there have been any complaints.