Turning to a business that offers help in solving debt problems may seem like a reasonable solution when your bills become unmanageable. Be cautious. Before you do business with any company, check it out with your local consumer protection agency or the Better Business Bureau in the company's location.

Ads Promising Debt Relief May Really Be Offering Bankruptcy

Consumer debt is at an all-time high. What's more, a record number of consumers — more than 1.5 million in 2004 — are filing for bankruptcy. Whether your debt dilemma is the result of an illness, unemployment, or overspending, it can seem overwhelming. In your effort to get solvent, be on the alert for advertisements that offer seemingly quick fixes. And read between the lines when faced with ads in newspapers, magazines, or even telephone directories that say:

While the ads pitch the promise of debt relief, they rarely say relief may be spelled b-a-n-k-r-u-p-t-c-y. And although bankruptcy is one option to deal with financial problems, it's generally considered the option of last resort. The reason: it has a long-term negative impact on your creditworthiness. A bankruptcy stays on your credit report for 10 years, and can hinder your ability to get credit, a job, insurance, or even a place to live. What's more, it can cost you attorneys' fees.

Advance-Fee Loan Scams

These scams often target consumers with bad credit problems or those with no credit. In exchange for an up-front fee, these companies "guarantee" that applicants will get the credit they want — usually a credit card or a personal loan.

The up-front fee may be as high as several hundred dollars. Resist the temptation to follow up on advance-fee loan guarantees. They may be illegal. Many legitimate creditors offer extensions of credit, such as credit cards, loans, and mortgages through telemarketing, and require an application fee or appraisal fee in advance. But legitimate creditors never guarantee in advance that you'll get the loan. Under the federal Telemarketing Sales Rule, a seller or telemarketer who guarantees or represents a high likelihood of your getting a loan or some other extension of credit may not ask for or receive payment until you've received the loan.

Recognizing an Advance-Fee Loan Scam

Ads for advance-fee loans often appear in the classified ad section of local and national newspapers and magazines. They also may appear in mailings, radio spots, and on local cable stations. Often, these ads feature "900" numbers, which result in charges on your phone bill. In addition, these companies often use delivery systems other than the U.S. Postal Service, such as overnight or courier services, to avoid detection and prosecution by postal authorities.

It's not hard to confuse a legitimate credit offer with an advance-fee loan scam. An offer for credit from a bank, savings and loan, or mortgage broker generally requires your verbal or written acceptance of the loan or credit offer. The offer usually is subject to a check of your credit report after you apply to make sure you meet their credit standards. Usually, you are not required to pay a fee to get the credit.

Hang up on anyone who calls you on the phone and says they can guarantee you will get a loan if you pay in advance. It's against the law.

Protecting Yourself

Here are some tips to keep in mind before you respond to ads that promise easy credit, regardless of your credit history:

• Most legitimate lenders will not "guarantee" that you will get a loan or a credit card before you apply, especially if you have bad credit, or a bankruptcy.
• It is an accepted and common practice for reputable lenders to require payment for a credit report or appraisal. You also may have to pay a processing or application fee.
• Never give your credit card account number, bank account information, or Social Security number out over the telephone unless you are familiar with the company and know why the information is necessary.

Credit Repair Scams

You see the ads in newspapers, on TV, and on the Internet. You hear them on the radio. You get fliers in the mail. You may even get calls from telemarketers offering credit repair services. They all make the same claims:

Do yourself a favor and save some money, too. Don't believe these statements. They're just not true. Only time, a conscientious effort, and a plan for repaying your debt will improve your credit report.

The Warning Signs
If you should decide to respond to an offer to repair your credit, think twice. Don't do business with any company that:

• wants you to pay for credit repair services before any services are provided
• does not tell you your legal rights and what you can do yourself — for free
• recommends that you not contact a consumer reporting company directly
• suggests that you try to invent a "new" credit report by applying for an Employer Identification Number to use instead of your Social Security number
• advises you to dispute all information in your credit report or take any action that seems illegal, such as creating a new credit identity. If you follow illegal advice and commit fraud, you may be subject to prosecution.

You could be charged and prosecuted for mail or wire fraud if you use the mail or telephone to apply for credit and provide false information. It's a federal crime to make false statements on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.

The Credit Repair Organizations Act

By law, credit repair organizations must give you a copy of the "Consumer Credit File Rights Under State and Federal Law" before you sign a contract. They also must give you a written contract that spells out your rights and obligations. Read these documents before signing the contract. The law contains specific consumer protections. For example, a credit repair company cannot:

• make false claims about their services
• charge you until they have completed the promised services
• perform any services until they have your signature on a written contract and have completed a three-day waiting period. During this time, you can cancel the contract without paying any fees.

Your contract must specify:

• the total cost of the services
• a detailed description of the services to be performed
• how long it will take to achieve the results
• any "guarantees" they offer
• the company's name and business address.

Where to Complain

If you've had a problem with any of the scams described here, contact your local consumer protection agency, state Attorney General (AG), or Better Business Bureau. Many AGs have toll-free consumer hotlines. Check with your local directory assistance.

Identity Theft

An identity thief is someone who obtains some piece of your sensitive information, like your Social Security number, date of birth, address, and phone number, and uses it without your knowledge to commit fraud or theft.

How Identity Thieves Get Your Information
Skilled identity thieves use a variety of methods to gain access to your personal information. For example, they may:

• get information from businesses or other institutions by:
• stealing records or information while they're on the job
• bribing an employee who has access to these records
• hacking these records
• conning information out of employees
• rummage through your trash, the trash of businesses, or public trash dumps in a practice known as "dumpster diving"
• get your credit reports by abusing their employer's authorized access to them, or by posing as a landlord, employer, or someone else who may have a legal right to access your report
• steal your credit or debit card numbers by capturing the information in a data storage device in a practice known as "skimming." They may swipe your card for an actual purchase, or attach the device to an ATM machine where you may enter or swipe your card.
• steal wallets and purses containing identification and credit and bank cards.
• steal mail, including bank and credit card statements, new checks, or tax information
• complete a "change of address form" to divert your mail to another location
• steal personal information from your home
• scam information from you by posing as a legitimate business person or government official
  

How Identity Thieves Use Your Information

Once identity thieves have your personal information, they may:

• go on spending sprees using your credit and debit card account numbers to buy "big-ticket" items like computers that they can easily sell
• open a new credit card account, using your name, date of birth, and Social Security number. When they don't pay the bills, the delinquent account is reported on your credit report.
• change the mailing address on your credit card account. The imposter then runs up charges on the account. Because the bills are being sent to the new address, it may take some time before you realize there's a problem.
• take out auto loans in your name
• establish phone or wireless service in your name
• counterfeit checks or debit cards, and drain your bank account
• open a bank account in your name and write bad checks on that account
• file for bankruptcy under your name to avoid paying debts they've incurred, or to avoid eviction
• give your name to the police during an arrest. If they are released and don't show up for their court date, an arrest warrant could be issued in your name.
  

Protecting Yourself

Managing your personal information is key to minimizing your risk of becoming a victim of identity theft.

• Keep an eye on your purse or wallet, and keep them in a safe place at all times.
• Don't carry your Social Security card.
• Don't share your personal information with random people you don't know. Identity thieves are really good liars, and could pretend to be from banks, Internet service providers, or even government agencies to get you to reveal identifying information.
• Read the statements from your bank and credit accounts and look for unusual charges or suspicious activity. Report any problems to your bank and creditors right away.
• Tear up or shred your charge receipts, checks and bank statements, expired charge cards, and any other documents with personal information before you put them in the trash.
  

How To Tell If You're a Victim of Identity Theft

Monitor the balances of your financial accounts. Look for unexplained charges or withdrawals. Other indications of identity theft can be:

• failing to receive bills or other mail signaling an address change by the identity thief;
• receiving credit cards for which you did not apply;
• denial of credit for no apparent reason; or
• receiving calls from debt collectors or companies about merchandise or services you didn't buy.
  

What To Do If Your Identity's Been Stolen

If you suspect that your personal information has been used to commit fraud or theft, take the following four steps right away. Follow up all calls in writing; send your letter by certified mail, and request a return receipt, so you can document what the company received and when; and keep copies for your files.

1. Place a fraud alert on your credit reports and review your credit reports.
   Contact any one of the nationwide consumer reporting companies to place a fraud alert on your credit report. Fraud alerts can help prevent an identity thief from opening any more accounts in your name. The company you call is required to contact the other two, which will place an alert on their versions of your report, too.

   Equifax: 1-800-525-6285; www.equifax.com
   Experian: 1-888-EXPERIAN (397-3742); www.experian.com
   TransUnion: 1-800-680-7289; www.transunion.com

   In addition to placing the fraud alert on your file, the three consumer reporting companies will send you free copies of your credit reports, and, if you ask, they will display only the last four digits of your Social Security number on your credit reports.

2. Close the accounts that you know, or believe, have been tampered with or opened fraudulently.
   Contact the security or fraud department of each company where you know, or believe, accounts have been tampered with or opened fraudulently. Follow up in writing, and include copies (NOT originals) of supporting documents. It's important to notify credit card companies and banks in writing. Send your letters by certified mail, return receipt requested, so you can document what the company received and when. Keep a file of your correspondence and enclosures.

   When you open new accounts, use new Personal Identification Numbers (PINs) and passwords. Avoid using easily available information like your mother's maiden name, your birth date, the last four digits of your Social Security number or your phone number, or a series of consecutive numbers.

3. File a report with your local police or the police in the community where the identity theft took place.
   Get a copy of the police report or, at the very least, the number of the report. It can help you deal with creditors who need proof of the crime. If the police are reluctant to take your report, ask to file a "Miscellaneous Incidents" report, or try another jurisdiction, like your state police. You also can check with your state Attorney General's office to find out if state law requires the police to take reports for identity theft. Check the Blue Pages of your telephone directory for the phone number or check www.naag.org for a list of state Attorneys General.

4. File a complaint with the Federal Trade Commission.
   By sharing your identity theft complaint with the FTC, you will provide important information that can help law enforcement officials across the nation track down identity thieves and stop them. The FTC also can refer your complaint to other government agencies and companies for further action, as well as investigate companies for violations of laws that the FTC enforces.

   You can file a complaint online at www.consumer.gov/idtheft. If you don't have Internet access, call the FTC's Identity Theft Hotline, toll-free: 1-877-IDTHEFT (438-4338); TTY: 1-866-653-4261; or write: Identity Theft Clearinghouse, Federal Trade Commission, 600 Pennsylvania Avenue, NW, Washington, DC 20580.

For more information, see ID Theft: What's It All About or Take Charge: Fighting Back Against Identity Theft at ftc.gov//idtheft.

The Federal Trade Commission enforces a number of credit laws and has free information about them:

The Equal Credit Opportunity Act prohibits the denial of credit because of your sex, race, marital status, religion, national origin, age, or because you receive public assistance.

The Fair Credit Reporting Act gives you the right to learn what information is being distributed about you by credit reporting companies.

The Truth in Lending Act requires lenders to give you written disclosures of the cost of credit and terms of repayment before you enter into a credit transaction.

The Fair Credit Billing Act establishes procedures for resolving billing errors on your credit card accounts.

The Fair Debt Collection Practices Act prohibits debt collectors from using unfair or deceptive practices to collect overdue bills that your creditor has forwarded for collection.