Nobody wants to get scammed but unfortunately, it’s almost impossible to avoid it these days. You’ve probably read about the data breaches at Target and Anthem Blue Cross/Blue Shield and you can bet that there will be more in the future. Scammers can be very smart and no matter how carefully we guard our finances they can find ways to steal our money.
Financial scams generally fall into one of two categories – mortgage scams and credit card scams. Here’s information that can help you understand both of them and what steps you can take to protect yourself.
Credit Card scams
It’s hard to keep track of credit card scams because they come in many different forms. Scammers sometimes use spyware or some other way to obtain your credit card information. Or a scammer might trick you into revealing your security code, which is that little three or four digit code on the back of your cards. They then use this information to buy stuff over the Internet or by telephone. If they can find some way to get your PIN number they could actually get cash advances from an ATM using what’s called a “cloned” credit card. This is where they copy the details on your card to another card’s magnetic strip. Then, of course, it’s possible that someone could use your credit card if you lost it or it was stolen.
The warning signs of a credit card scam
There are things to watch out for that can tell you that you may have been scammed. For example, you may find transactions on your credit card statement that you don’t understand or don’t remember making. Maybe you gave your credit card information to someone that you now believe might not be trustworthy – like over the Internet. Of course, you could have lost your card or you could have kept your security information (your PIN or personal access code) near your card and it went missing.
How to avoid credit card scams
If you follow these tips it’s relatively easy to avoid a credit card scam.
• Do not share your PIN (personal identity number) with anybody. And make sure that you don’t keep a copy of your PIN number with your card.
• Don’t ever send money or give information about your credit card or online account to anyone that you do not know and are not sure you can trust.
• When you get your bank account and credit card statements each month make sure you review them carefully. If you find a transaction that you can’t explain or don’t understand report it to your bank or credit union.
• Don’t do your Internet banking in public places such as Internet cafés or libraries.
• Make up passwords that would be difficult for other people to guess. Research has revealed that many people use passwords such as 123456 or ABCDEF or even the word password. These passwords are simply too easy to guess. If you have a problem thinking up a secure one go online to a password generator for help.
• Don’t provide your credit card, online account details or personal information over the phone unless you are the one that made the call and that the phone number was that of a source you trust.
• Finally, don’t ever send your personal, credit card or online account details in an email.
Report suspicious activity
If you believe your identity has been stolen or that someone else is using your bank account or credit card be sure to report this immediately to your bank. If the scam involved your credit card your liability is probably limited to $50 and it might even be waived. It’s a different story if your debit card was involved as it could take up to 60 days to get your money back.
While most mortgage lenders are honest and ethical every industry has its bad apples and so does this one. Here are the signs that the lender could be a scammer.
You may want to purchase points to reduce the amount of interest that you will be required to pay on the loan. If you find that points have been built into the loan of more than 3% to 4% of the total loan amount, this is a sign that the lender may be questionable. Your best option would be to go someplace else.
Not taking into consideration your ability to pay
A good rule of thumb is that your mortgage payment should not be more than of 28% of your gross monthly income. While it’s not the lender’s job to help you with your household budget it should ask a lot of questions about your finances especially about your income. In the event the lender doesn’t, this is probably not a company with which you want to do business.
Penalties for prepayment
You should not be charged a penalty if you decide to pay off your loan early. Lenders that are unscrupulous will try to charge a prepayment penalty of 5% or more. This fee could make it very difficult for you to get out of your loan later.
Inflated interest rates
If you’re trying to get your loan through a mortgage broker ask if it will be paid what’s called a “yield spread premium.” If the answer is yes, run do not walk out of the office. This means that the broker is charging you a higher interest rate than the one you would actually qualify for. It’s his or her way to make extra money and it’s entirely unnecessary.
“Bad credit doesn’t matter to us”
If a lender tells you that it doesn’t matter whether you have bad credit this will probably be a predatory loan and will almost certainly have terrible terms. The sad fact is predatory loans are often aimed at lower-income people as they are more likely to have bad credit.
You may be offered very good terms if you agree to a balloon payment, which is a lump sum that’s due at the end term of the loan. There are cases where this payment can be as high as the amount of money you originally financed. Don’t be sucked in by what seems to be better terms prior to that balloon payment. Do the math and you may find that it won’t work out for you.
Inflation of home value or income
If a lender helps you qualify for a mortgage loan by inflating the value of the home or your income, avoid it. This is not neither legal nor ethical and second, if you can’t afford the loan you’re just headed down a slippery slope towards trouble. Besides, if the lender is willing to lie for you they may be lying to you. This is definitely not a company with which you would want to do business.
There’s not a good a good-faith estimate
By law lenders must provide you with basic information about the loan including its estimated cost. This comes in the form of a good faith estimate on a form called HUD-GFE. If you don’t receive the GFE within three days or it comes on some other form, just don’t use that company.
If it sounds too good to be true
The net/net here is that if you’re being offered a deal on your mortgage that sounds too good to be true it probably is. Make sure you don’t fall for predatory mortgage loan tactics and up with a loan you can’t afford or that has really awful terms. There are numerous websites available designed to help you find a good mortgage loan. Use one of them to make sure you’re not scammed.