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Cancel Unused Credit Cards

Posted By Jim On 01/22/2008 @ 8:44 am In Devil's Advocate | 11 Comments

It’s a widely believed fact that your credit score can be improved if you keep your unused credit cards (rather than cancel them). By keeping these 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 advocate that because 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 USA, a branch of GE that manages the in-store credit card programs of many retailers, recently reported that one of the nine back-up tapes put into storage at Iron Mountain had gone missing. After a search of the facility, they were unable to locate the missing tape. What was on it? It is supposed to contain the personal details of approximately 650,000 people. Think you are safe because you have nothing to do with GE Money USA? Unfortunately, you’re probably wrong because GE Money USA handles retailer credit cards for over 230 retailers, one of which is the ubiquitous JC Penney company. But look on the bright side, you might be getting free credit monitoring for a year! In all seriousness, while the actual probability you will be affected by data breaches such as this one will be relatively low, wouldn’t you be kicking yourself for keeping around an unused JC 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, then you won’t be eligible for these new offers since you’ve already own the card. So, 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 you first purchase [3]) and then didn’t use them much after the promotion (mostly because cards with better cashback came along), so why not cancel them so you can take advantage of newer promotions? There is generally a period after which the card no longer considers you a customer, usually six months, but 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 the card for the promotional offer, cancel, then repeat. I’m not advocating that, in fact I think it’s stupid. The frequent applications for credit will destroy your credit score. I just mean to say you want to keep flexible, especially if you aren’t even using the card.

Out of Sight, Out of Mind

If you never use the credit card 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 used it so how could someone else have gotten access to it? However, it’s entirely possible that someone got access to your card and began using it without your knowledge. When thieves steal card information, it’s not uncommon for them to wait a few months before using it. Why do they wait? It’s harder to pinpoint when the loss occurred if it happened months prior to actual fraudulent activity.

Keeps Things Organized

You can’t lose a card if you cancel it! Let’s say you put all of your unused cards into your desk drawer. Six months later, someone breaks into your home and steals all of your cards (or just one, it’s actually worse if they only take one!), how can you possibly remember which cards to cancel? (you would know if you had a personal finance user’s guide!) Let’s say no one steals it but one of them expires and they send you a new one, only to have it intercepted at the mail box 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 some extra clutter sitting around, extremely expensive clutter if it gets into the wrong hands.

May Not Actually Help Score

One of the main points behind 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 could be possible that the new card is negatively affecting your credit line age metric. While it’s difficult to calculate and probably a waste of time, 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?


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[3] credit cards that offer $100 gift cards after you first purchase: http://www.bargaineering.com/articles/100-credit-card-signup-deals.html

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