Devil's advocate: Cancel unused credit cards
Posted
Feb 26 2008, 11:13 AM
by
Karen Datko
This devil's advocate post comes from partner blog Blueprint for Financial Prosperity.
It's widely believed that your credit score can be improved if you keep your unused credit cards, rather than cancel them. By keeping those cards, you are increasing the average age of your lines of credit, increasing the total amount of credit, and decreasing your credit utilization -- all good things when it comes to computing your score.
So why do I always advocate canceling unused cards? I believe it is the safest thing for you to do and is better than keeping unused cards for the credit-score benefit.
Security breaches. GE Money, a branch of General Electric Capital Corp. that manages the in-store credit card programs of many retailers, recently reported that a backup tape put into storage at Iron Mountain Inc. had gone missing.
What was on it? It contained personal information on about 650,000 people, including the Social Security numbers of about 150,000 people.
Think you are safe because you have nothing to do with GE Money? Unfortunately, you're probably wrong, because GE Money handles retailer credit cards for more than 230 retailers, one of which is the ubiquitous J.C. Penney Co. But look on the bright side: You might be getting free credit monitoring for a year.
In all seriousness, while the actual probability that you will be affected by data breaches like this one is relatively low, wouldn't you be kicking yourself for keeping around an unused J.C. Penney card when you could've canceled it?
Promotional offers. If you have a card and the credit card company starts offering hot new promotions for it, you won't be eligible for the new offers because you already have the card.
I've signed up for a lot of cards because they offered free promotions (I compiled a list of credit cards that offer $100 gift cards after your first purchase) and then didn't use them much after the promotion, mostly because cards with better cash back came along. So why not cancel them so you can take advantage of newer promotions? The card companies generally consider you a customer for a period of time -- usually six months -- after you cancel. After that, you are like every other Joe (or Janet) on the street.
Please don't read this to mean that I think someone should apply for a card for the promotional offer, cancel, then repeat. I'm not advocating that. In fact, I think it's stupid. Frequent applications for credit will damage your credit score. I just mean that you want to be flexible, especially if you aren't even using the card.
Out of sight, out of mind. If you never use one of your credit cards and never receive a bill, would you check your account for fraudulent activity? I'd say there's a 99.9% chance you wouldn't because you wouldn't think to. You never use it, so how could someone else get access to it? However, it's entirely possible that someone could get access to your card information and begin using it without your knowledge. It's common for thieves to wait a few months before using it. Why do they wait? It's harder to pinpoint when the theft occurred if it happened months prior to actual fraudulent activity.
Organization. You can't lose a card if you cancel it. Let's say you put all your unused cards into a desk drawer. Six months later, someone breaks into your home and steals your cards. How can you possibly remember which cards to cancel? Or let's say one of your unused cards expires and the company sends you a new one, but it's intercepted at the mailbox by an enterprising identity thief.
Let's say no one does anything bad and you have the card in your desk without incident. What's the benefit? You have extra clutter -- extremely expensive clutter if it gets into the wrong hands.
Effect on your credit score. One of the main arguments for keeping a card is that it improves your average credit-line age, but that may not be true. If you cancel a recently issued card, it's possible that may negatively affect your credit-line age metric. However, the credit-score boost you are trying to get with the unused card may not be as good as you thought it was.
Ultimately, I think that keeping unused cards lying around is a recipe for disaster. I cancel cards that I don't use. What do you do?
Other articles of interest from Blueprint for Financial Prosperity:
"Consolidating Citi credit card accounts"
"Should you refinance?"
"50 fun facts about credit cards"
