Kill That Unused Account

Faith & Finance

Americans have an average of four credit cards. Do you really need that many? And how many is enough?

Too often, we hang on to credit cards we no longer use…providing an unnecessary invitation to identity thieves to run up charges in our names. Canceling them is a good idea if done correctly.

The Risks of Holding Unused Credit Cards

Many of us hang on to credit cards we no longer use, but this can invite identity thieves to run up charges in your name. Canceling unused cards is a good idea, but it needs to be done correctly. Let’s explore why and how to do it.

Why Closing a Credit Card Affects Your Credit Score

One common concern is whether closing a credit card will affect your credit score. The short answer is yes, it will drop a little. This drop happens because of the way credit scores are calculated.

Algorithms used to calculate your score favor long-standing accounts, available credit, and a mix of account types (like credit cards, auto loans, and mortgages). Closing a credit card affects these factors, hence the drop in your score. However, this drop is usually minor and temporary.

When to Be Cautious About Closing a Credit Card

If you’re shopping for a mortgage or another major loan, it’s essential to maintain the highest credit score possible. A lower score, even by a few points, can result in a higher interest rate, costing you more money over time. In other cases, the drop in your credit score from closing an account is not something to worry about too much.

Why Close Unused Credit Cards?

There are two main reasons to close unused credit card accounts:

1. Reduce Temptation: An unused credit card can become a temptation during financial stress. Instead, rely on your emergency fund for unexpected expenses.
2. Prevent Identity Theft: Unused accounts are a target for identity thieves. Closing these accounts reduces your risk.

How to Properly Close a Credit Card Account

If you decide to close an unused credit card account, here’s how to do it properly:

• Pay Off the Balance: Ensure there is no remaining balance on the card.
• Cancel Recurring Charges: Check for any recurring charges and cancel or transfer them.
• Notify the Issuer: Call your card issuer to cancel the account and follow up with an email or letter for confirmation.
• Check Your Credit Report: Verify the account is closed by checking your credit reports from Experian, TransUnion, and Equifax. You can access these reports for free at AnnualCreditReport.com.

Gradually Closing Accounts

Avoid closing several accounts at once. This can multiply the negative impact on your credit score. Instead, close no more than one or two accounts every six months. This gradual approach minimizes the adverse effects while keeping your credit utilization low and maintaining timely payments on other accounts.

Following these steps, you can manage your credit cards wisely and protect yourself from potential risks. And remember, a slight dip in your credit score from closing an account is usually not a cause for concern.

On Today’s Program, Rob Answers Listener Questions:

• What are the tax implications of selling a rental property I own in Montana? I recently sold the property and want to reinvest the money from the sale into my business and possibly another investment property. What will my tax obligations be for the sale of the property? Is there a way that I can put the money into something like a 1031 exchange to use the funds for reinvestment without being taxed on it as income?
• I'm paying an extra $115 over my normal monthly payment amount. However, when I check my statements, I notice that my bill is not changing, and the extra $115 I'm paying is not reducing my principal balance. I've called my loan servicer about this, and they tell me that I still have one more payment to make, but that doesn't make sense if I'm paying extra each month.
• I have some retirement funds that I have from working as a government employee that I have not utilized yet and will need to move. I have two TSP funds sitting there and was looking for recommendations on what to do with the money. I'm also retired, so I wanted to check if my age will impact anything when moving the funds to an IRA. Additionally, I was curious about keeping the money in an IRA for a long time and potentially making a trust the beneficiary instead of just leaving it to my kids directly.

Resources Mentioned:

• The Sound Mind Investing Handbook: A Step-by-Step Guide to Managing Your Money From a Biblical Perspective by Austin Pryor with Mark Biller
• AnnualCreditReport.com
• Rich Toward God: A Study on the Parable of the Rich Fool
• Find a Certified Kingdom Advisor (CKA) or Certified Christian Financial Counselor (CertCFC)
• FaithFi App

Remember, you can call in to ask your questions most days at [phone]. Faith & Finance is also available on the Moody Radio Network and American Family Radio. Visit our website at FaithFi.com where you can join the FaithFi Community and give as we expand our outreach.