I have a lot of different credit cards, some of them old, should I close the accounts? I heard that might hurt my credit score, but won’t keeping them open be a risk for identity theft?
Managing multiple credit cards can be a hassle if you don’t properly organize them. If you have old credit accounts that you no longer use, they can be tricky to deal with. The first thing you should do if you have any outstanding balances on your old cards is work to pay those off. The quick answer is that you are correct that closing those accounts could hurt your credit score, so it’s probably best to leave them open. There is more to this however, since the scenario of handling different credit accounts can be different for everyone, and the decisions you make can will affect your credit score. Here are some tips for properly managing multiple credit cards:
- Pay down high interest rate cards
- Don’t close old credit accounts
- Use one main credit card
- Keep balances at 30% or less
- Use alerts to combat identity theft
Pay down high interest rate cards
If you have outstanding balances on some of your old accounts, make sure you understand the terms (ie, interest rate) that you are paying on those. A lot of times our older credit accounts were established when we were just starting out financially, so the interest rates are horrible. Make sure you pay off your highest interest rate debt first, it’s one of the first rules of managing debt.
Don’t close old credit accounts
One of the main factors of your credit score is your total outstanding balances compared to your total available credit. When you close old credit accounts you are hurting yourself in two ways. First, you are reducing the total available credit by the credit limit amount of your closed account. Second, since your account would have to be paid in full prior to being able to close it, you’re not reducing any of your outstanding balance! It’s a double whammy that you should avoid. After you pay off your accounts, keep the important account information in a safe place and destroy the card. That way you won’t be tempted to use it, and it won’t hurt your credit score.
Keep balances at 30% or less
Make sure that all of your credit balances are at 30% of their credit limits or less. This ensures that your credit score factor for revolving credit will be as high as it can be. It can be tough to juggle multiple accounts and make sure all of them are at 30% or below, so it might be best to pay off what you can and consolidate them to one account, making it much easier to manage.
Use one main credit card
One nice way of managing multiple credit cards is to not have to! Once you are able to pay down your other accounts, make one card your primary credit card for everything. Make sure if you do this that the card you choose has a good credit limit and a good interest rate, otherwise you could just be hurting yourself in the end. By having only one account to monitor, it’s a lot easier to spot any fraudulent activity as you only have one account to concentrate on. Using only one card also has the benefit of limiting your risk if you lose your wallet.
Use alerts to combat identity theft
With all these old credit accounts open, how do you handle the risk for identity theft? One way to mitigate the risk is to use alerts on your old credit accounts. Most banking websites give you the option to be alerted (via email or text message usually) whenever certain actions happen on your account. A good trick to use is to create an alert whenever a purchase is made, or whenever your balance is above $1, and that will let you know that someone is using your old card when they’re not supposed to. It’s not a comprehensive plan to stop identity theft, but it will at least allow you to be notified as soon as fraudulent activity happens on one of your existing accounts. The sooner you know, the better chance you have at reducing your risk.
