In the past few years, newer versions of credit cards with embedded digital chips have taken over wallets everywhere. That raises a question, as posed by Money Talks News reader Kim:
“What is the safest way to dispose of the new chip credit cards so personal account information isn’t stolen?”
Destroy the card, not the account
Before we talk about how to destroy our physical cards, let’s talk about closing credit accounts.
If the card isn’t charging an annual fee, don’t worry about closing the account. Leaving it open typically won’t hurt your credit score, while closing it could negatively impact your credit score. That’s because of two factors.
Factor one: Part of your credit score comes from the length of your credit history. If you cancel an account you’ve had a long time, you could be reducing the length of your credit history. For example, I’ve had one credit card for 25 years. A long credit history improves my credit score.
Note, however, that when you close an account, it won’t immediately impact your history. Closed accounts in good standing can remain on your credit history for 10 years. But still, if it’s helping, why close it?
Factor two: Another part of your credit score comes from your credit utilization ratio — in other words, how much credit you’re using compared with how much you have available to you. You want that ratio to be low; most experts say below 30%.
For example, if you’ve got a $3,000 balance and have $10,000 of credit available, you’ve used 30% of your available credit — you’re at a 30% utilization ratio. That puts you right against the limit of where you should be.
But what happens when you cancel some of your available credit? If you’ve got a $3,000 balance and have only $5,000 of available credit, your credit utilization ratio just went to 60%. Now, you look like someone about to max out their credit.
Bottom line? If an account isn’t costing you anything, why cancel it? Unless you’re afraid of temptation, just leave it alone and forget about it.
If you do want to cancel the account — say, because it’s costing you money — call the number on the back of the card, ask them how to do it and follow their instructions. If they say you can cancel it over the phone, fine. But take notes about the representative you talked to, what he or she said, etc., in case something goes awry.
Destroying the card
In the past, what you’ve probably done to destroy an old credit card is cut it up with scissors. And guess what? That still works.
When it comes to chip cards, the American Bankers Association recommends cutting through the chip, then cutting the card a few more times. Then, dispose of the sections in more than one trash bag.
If the card is metal, you could use tin snips, or pull out your power tools and go to town. Or, you could just request a prepaid envelope from the issuer, send it back and wonder why the heck they make credit cards out of metal in the first place.
If you search this topic online, you’ll find lots of other ideas, including using a magnet on the magnetic strip before slicing and dicing, burning them in a fire or using a heavy-duty shredder. All good.
But in the end, all you really need to do is cut it up, making sure you cut the embedded chip. Put the pieces in multiple trash cans, and you’re done!
Hope that answers your question, Kim.
I founded Money Talks News in 1991. I’m a CPA and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.
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