Reports show that identity theft and misuse of credit card information is at an all time high these days. Credit card holders have to ensure that they are taking every step to protect themselves and their financial history from the potential for risk. Even the cards you are no longer using can carry potential risk.
Identity theft and theft of credit card information can have serious financial consequences that can impact people for years. Unfortunately, taking the scissors to your credit card does nothing more than make the card unusable to you. Consumers have to know that cutting up their credit card is not the same as the good old fashioned phone call to cancel the account. Statistics show that yearly more 9 million consumers in the United States are victims of identity theft.
Reasons Why People Cut Up Their Cards
Interest rates go up. Some people cut up their card because the interest rates continue to skyrocket. If the card is costing you more than it benefits you to have it, it makes sense to cut your losses and get rid of the card.
A better offer is available. Credit card companies are always marketing rewards programs; cash back incentives and other gimmicks to attract new customers. Many people choose certain cards for the benefits that they earn from the rewards programs. Getting more bang for the buck is the same reason why many people cancel one card and open up a new account.
One too many cards in the wallet. Having too many credit cards can be dangerous, especially for a spender. It is so easy to grab for one of several cards to pay for merchandise. There comes a time, especially in financial hardship that people realize that they should eliminate the risk for debt by canceling one or more of the credit cards that are in their wallet.
The annual fee is due. Some credit cards charge an annual fee, others do not. Usually the cards that charge an annual fee have other perks and benefits associated with them such as low interest rates or great rewards. The annual fee is automatically charged to the card. Some people open and close credit card accounts regularly and will cancel these before the fees are due to save money.
Misconceptions of Closing Accounts
Cutting does not equal canceling. Cutting up a card without canceling the account with the lender can be a recipe for disaster. This can put people in a position to be victim to identify theft or unauthorized use of the account. How often have you used your card for an online payment without needing to produce the actual card? Canceling the account is the only sure way that you can be sure that someone does not get their hands on your information.
Not using the card means it is no longer active. This misconception is generally why people cut rather than make the call to the company to cancel the account. All cardholders have different patters of credit card use. A lender does not assume that because someone is not using the card that they have canceled; just as a lender cannot assume that if someone is using a card that they can afford to pay the balance. Cardholder must communicate their intentions to the credit card company.
There is nothing wrong with canceling one card to reopen a new card. Many people do cancel one account to open up an account for a card that has better benefits appears to be a good way to maximize on the credit card incentives, however it may be damaging in the long term. Credit history is based in part on longevity. You may avoid annual fees or get a better deal with a new card but in the eyes of the credit card lenders it raises a red flag and may put a blemish on your credit score. Changing cards often eliminates the ability to create a long-term history with one lender.
The history of activity does not go away just because you cancel your account. Credit cards that are canceled still show the payment history o f the account holder. Just because the card is cut up and the status shows canceled, the history still remains on the credit score of the cardholder for up to 10 years. Those looking to cancel a card that they have paid off but may have a history of late payments will not be erasing that history.
In order to protect yourself and your credit card account you need to make the call to cancel the account. Cutting up your credit card is the last step of the cancellation process, not the first. Cutting before cancellation can have potential long term risks to you as a consumer.