For many consumers, the prospect of buying a home can be daunting. There are various factors that go into a lender’s decision whether to extend credit or not, and a buyer, especially one with some credit issues, has to make sure that their loan application is as red-flag-free as possible.

That places many potential borrowers at risk for scammers who offer quick fixes to the buyer’s credit. And, there are 3 ways they do it.

In an effort to protect as many potential homeowners as possible, Freddie Mac is issuing a warning to buyers and lenders about scams that offer the promise of a raised credit score in exchange for money.

“Who doesn't want the highest credit score possible to garner the most-favored terms?,” Freddie Mac writes on its website.

“For many Americans with consumer credit negatively impacted by the housing crisis and fluctuating economy, it's easy to be lured by the promise of a raised credit score,” Freddie Mac continues. “Schemes that falsely raise credit scores will land borrowers in scalding hot water - as well as cost you time and money combating both origination- and servicing-related fraud.”

Freddie Mac said that consumers, as well as those in the mortgage industry, need to be on the lookout for any person of credit repair service that offers “help” with one of three types of common fraud schemes that promise an increased credit score, including:

1. Disputing credit with credit bureaus

Freddie Mac cites the new program from FICO (FICO), which is geared to assist approximately 1 million consumers annually that are in need of more credit and financial guidance.

The new program titled, FICO Score Open Access for Credit & Financial Counseling, was designed to aid consumers who have credit management problems by providing FICO Scores along with credit education material that helps consumers understand credit scoring and learn about responsible financial health management.

Freddie Mac said that while this program is good for borrowers, it presents fraudsters with an opportunity to game the system and take advantage of borrowers.

“(Scammers) may direct a borrower to contact credit repositories repeatedly to dispute previously defaulted debt.” Freddie Mac writes. “The fraudster hopes the creditor will miss responding to one of the disputes and the defaulted debt will disappear temporarily, triggering a jump in the borrower's credit score. The borrower may qualify for - and close on - a new mortgage before the credit report correctly reflects the defaulted debt and the borrower's true credit score.”

2. Falsely claiming identity theft

Freddie Mac warns that some companies may encourage consumer to falsely claim identity theft on their loan application in an attempt to have debt removed from their credit report.

“Some borrowers who falsely claimed identify theft have gone as far as providing affidavits of identity theft and police reports,” Freddie Mac writes. “Of course, lenders take these claims seriously and investigate. In some instances, they discover that the ‘police report’ is fake, never actually filed, or from a police department that doesn’t exist.”

Freddie Mac tells lenders to remind their borrowers that falsely claiming someone stole their identity is as bad as stealing someone else's identity.

3. Misusing credit protection numbers

Freddie Mac warns that using a credit privacy number, which is an alternative for a Social Security number most commonly used by borrowers in the public eye, such as celebrities and politicians to mask previous credit issues is dangerous.

“Some consumers with poor credit acquire a CPN with the intent of creating a new, clean – and misleading - credit profile,” Freddie Mac writes.

Freddie Mac write that it’s important to keep in mind that using a CPN in that way is illegal.

“CPNs were not created for this purpose, and mortgage loans originated using a CPN are ineligible for sale to Freddie Mac,” Freddie Mac writes. “Borrowers who use a CPN with the hope of leaving their bad credit histories in the rear view mirror are in for a rude awakening. As the Federal Trade Commission bluntly points out, ‘By using a stolen number as your own, the con artists will have involved you in identity theft,’ for which you may face legal trouble.”

Freddie Mac writes that by raising awareness of these types of scams, lenders can help borrowers avoid falling prey to scammers.

Freddie Mac said that lenders should remind borrowers that:

  • Credit scores aren't used unfairly to block them from accessing credit; their purpose is ensuring successful repayment of borrowed money. Ploys to circumvent official credit controls will likely set up consumers to fail.
  • The best way of raising and maintaining a healthy credit score is by consistently paying bills on time. A quick jump in credit score is never worth the stain on their records.