If you have below average credit, there are people out to get you. Unscrupulous scammers know that people with bad credit often need loans and use the opportunity to extract both money and personal information.

How do these kinds of scams work and how can you avoid them? Let's take a look.

==> How a Bad Credit Loan Scam Works
The scammer first comes into contact with you via email, phone or through a website.

Usually they have some sort of promise where they guarantee that you'll be approved for a loan, no matter what your credit looks like. (That should be your first red flag - no real lender guarantees loans without seeing your credit.)

They'll then ask for your personal information, including social security, address, birth dates and account numbers, in order to process your loan.

Finally, they'll usually ask for an "advance fee" which needs to be paid in order to process your loan.

Of course, once the fee is paid, no real money is ever wired to your account. The fee is forfeit, but the scam doesn't end there.

Your personal information is often then sold to third parties, who in turn use your information to write bad checks, open unauthorized credit card accounts or commit all kinds of other fraudulent activities.

In other words, falling for one of these scams will not only cost you money, but possibly result in a stolen identity.

==> How to Recognize and Avoid These Scams
The first step to recognizing a scammer is to always, always, always research the lender before giving any personal information.

Use the Better Business Bureau's website to look up any business you're considering. If you see any scam reports, avoid it. Also look them up on RipoffReport.

Never pay upfront for a loan of any sort. That applies for personal loans, bad credit loans and payday loans. In the USA and in Canada, it's illegal for lenders to ask for a fee upfront, so if they do you know you're dealing with a scammer.

Finally, only work with websites you trust and know. Never do business with a company you've never heard of, especially if they reached out to you first via email. Real lenders will never, ever send out unsolicited emails.

With just a bit of background information and a careful mentality, you can avoid getting scammed. It's unfortunate that there are people out there preying on people just when they can least afford the financial hit, but such scams all too common.

You now know how these scammers work, as well as a few tell-tale signs that'll allow you to spot these scams a mile away.