Identity Theft Prevention: What to Keep and What to Shred

Your shredder is one of your best defenses against identity theft. Identity thieves often look for documents containing personal information in trash cans, since many people unknowingly throw away information that can be used to open credit card accounts in their name or enable other forms of identity theft.

But at the same time, it’s a horrible feeling to realize you actually needed to save a document just as it is being cut into tiny pieces. Shredding a document too soon can also have significant financial ramifications, so you want to ensure that you retain tax records and related financial documents for a minimum of seven years in the event of an audit, as recommended by Consumer Reports.

Things to Save

Major Life Event Documents – According to the Federal Trade Commission (FTC), certain documents that are related to major life milestones should be saved forever. These include birth certificates, adoption papers, social security cards, citizenship papers, passports, marriage certificates, divorce papers and death certificates. Since the FTC recommends keeping these items forever, if these items are misplaced or shredded, you may want to get replacements since it is likely that you will need to present this information in official form in the future.

Tax Returns – The IRS recommends keeping tax returns for a period of time ranging from three years to indefinitely, depending on the situation. However, the FTC recommends taking a conservative approach and saving them forever. Since the ramifications of not having a tax return when you need it can be high, it makes sense to err on the side of caution with tax documents.

Things to Shred

Credit Card Offers – These are a gold mine for thieves, since they contain personal information such as your name and address.

Bank Statements – Although many banks cloak the account number, this document still gives identity thieves enough information to get started. Most experts suggest shredding bank statements after one year, but you could save yourself the trouble and  sign up for electronic statements instead.

Credit Card Statements – In addition to personal information and credit information, statements also contain a large amount of data about your whereabouts and habits. As with bank statements, the Center for Identity Management and Information Protection (CIMIP) suggests going paperless and opting for electronic statements to help safeguard your information.

Receipts – If a receipt has your credit card information or bank account number visible, it is especially important to shred this information.

Safeguarding your personal information is a key to preventing identity theft. By taking the time to destroy documents which can be damaging in the wrong hands, you can decrease your odds of becoming a victim of identity theft.

Closing Credit Card Accounts: Positive or Negative for Your Credit Score?

Is increasing your credit score on your list of goals? If so, you may immediately think cutting up your cards and closing your accounts is the first step on the road to a higher score. But before you pick up the phone, it’s important to understand the ramifications of closing accounts on your credit score.

Many people think that when they cut up a card the account is closed. However, you have to actually contact the credit card company to close out the account. If you are concerned about continuing to use the card, then cutting up the card to prevent usage while paying off the balance can be an effective strategy.

The reason closing accounts can impact your credit score is that a large portion of your credit score is calculated based on your debt-to-available credit, or credit utilization percentage. Most experts say 30 percent is a good debt-to-credit threshold, and the lower the better.

For example, you have the following credit cards: 

  • Card with $5,000 limit and $2,500 balance
  • Card with $7,000 limit and no balance

You have a 20.8 percent credit utilization, which is within the target range.  However, if you close the account with the $7,000 limit, then your credit utilization score changes to 50 percent, which above what experts recommend. Instead of having the intended effect of increasing your score, you may very likely cause your credit score to be lowered.

The Smart Way to Close Credit Cards

When considering closing accounts, use the following tips to potentially lessen the impact on your credit score:

  • Calculate your credit utilization percentages and carefully think through the impact of closing specific cards on your debt-to-available credit ratio. Determine which card makes the most sense to close based on the impact on your credit utilization score.
  • Consider paying off the credit cards you are going to keep open before cancelling any cards. This may lessen the impact on your credit utilization score.
  • After each card is paid off, check your credit report to ensure that the zero balance has been reported to the credit bureaus, which will also reduce the impact.
  • If you decide to close an account, contact the credit card company and follow procedures for closing the account. Different banks have different procedures ranging from completing a form to simply making a verbal request over the phone.

Increasing your credit score can take time and effort. By making sure you are not inadvertently making financial moves that cause a step back in the process, you can continue on the road to a healthy financial future. 

The Real Cost of Identity Theft

The Real Cost of Identity Theft
It is no secret that having your identity stolen is something you should actively protect yourself against. Resolving an identity theft is time consuming, may cause you to have credit requests denied, and leaves people feeling personally invaded. However, many people do not realize that their finances could take a significant hit after one’s identity is stolen, often in surprising ways. Every situation is different and much of the damage is not easily quantifiable.  When thinking about the potential cost of having your identity stolen, consider the following factors:
  • Time – When your identity is stolen, there is a long list of tasks you must complete immediately, including filling out an identity theft report, freezing your credit and requesting copies of your credit report. This takes time, often a lot of time, which takes away from other activities, such as spending time with family or possibly working. You will also need to carefully review your credit report regularly for the next few years to make sure new instances of fraud do not show up.
  • Higher interest rates – Identity theft victims may see their credit scores drop over time after a thief hasused stolen personal information to open a loan or new credit account and thendefaulted on payments.  In the meantime, this means that if your car is totaled in an accident and you apply for a car loan, you may end up paying a higher interest rate due to your damaged credit score.
  • Loss of Opportunity Costs – In some cases, your credit may be so damaged that you cannot even get a loan after an identity theft, according to a survey conducted by the Identity Theft Resource Center. This means you may not be able to buy the renovated condo down the street that is a fantastic deal, but instead pay a higher price next year for a unit in need of an update.
The bottom line is that each time your identity is stolen, you will face unexpected costs, both in dollars and hours. The best solution is to take steps to protect your identity. And spending a small amount each month to help keep your identity secure and prevent widespread damage if fraud is detected can end up saving you a lot of time and money in the long run.