Fighting Off Your Undead Credit Cards

​With data breaches in the news almost every week, you may be feeling like your personal information isn’t safe anywhere. It’s true that the more places your information exists, the greater your risk of identity theft, which is why we recommend getting rid of information “zombies” such as social media and other online accounts that you’re no longer using. With all the financial information exposed in the Equifax breach, you also need to be on the watch for account takeover fraud, a kind of identity theft where thieves take control of your existing bank or credit card accounts. You may decide to just kill off unused accounts to protect yourself, and it’s true that zombie accounts could bite you, but fighting them is a tricky business. Here’s what you need to know.

Many retailers now offer branded credit cards with big sign-up discounts and reward programs, so it’s easy to end up with a lot of credit cards that you don’t use very often. Later they may change the rewards program or raise the annual fee, giving you one more reason to get rid of that card. But here’s the catch: the credit limit on every card becomes part of your credit score, so canceling cards can hurt your credit rating. In a nutshell, your credit score is partly based on the total credit limit of all your credit cards versus the existing debt against those lines of credit. For example, if you have 2 credit cards with limits of $5,000 each and you typically charge $2,000 a month on one of them, you’re using only 20 percent of your available $10,000 credit. If you cancel one of those cards and still charge $2,000 on the other one, suddenly you’re using 40 percent of your available credit, and that lowers your credit score.

Still, if you do it carefully, you can cancel zombie accounts without harming your credit score. Here are some tactics recommended by Bankrate and other financial experts to protect your identity and your credit:

• Close your newest cards first. The longer you’ve had a card, the more important it is to your credit history.
• Close cards with the lowest limits because they will have the smallest impact on your balance-to-credit-limit ratio.
• Close one card at a time. Every time you make payments on time, that raises your credit score, so if you give your score time to recover before closing more cards, the impact will be small.
• Close cards with big annual fees. Why pay big fees for cards you’re not using?
  

To protect your credit score, some financial experts recommend simply tossing unused credit cards in a drawer and forgetting about them. But they’re not in the business of protecting your identity, and identity theft can damage your credit score far more than canceling a credit card. The smart approach is to proceed with caution, but don’t hesitate to exterminate identity zombies wherever you find them.