Dear Liz: I was deep in credit card debt but, because of a stroke of good fortune, came into enough money to completely pay off all my debts except my home. My house payment is now easy to make and my family is in the best financial shape we have ever been in. We even have several thousand in the bank for emergencies. After paying off the credit cards, we began receiving notices from many of the credit card companies canceling our cards or increasing the interest to astronomical rates. Each time I told my wife not to worry, because it was just one less card we had to worry about monitoring, but this trend is continuing. Recently we got a letter from a major retailer we have had an account with for over 25 years saying our credit debt was considered too risky and they were closing our account. I do not understand this because I do not have any credit card debt anymore. My question is why am I being penalized for paying off my debt or is there something I happing I do not know about?
Answer: Run, don’t walk, to your computer and point your browser to the free credit report site, www.annualcreditreport.com. (This is the only address to use; beware of fake and lookalike sites.)
You need to check your reports to see if your good name has been hijacked by an identity thief. While many issuers are closing inactive accounts and raising interest rates for broad swaths of their customers, most aren’t referring to nonexistent debt as the reason to do so.
If you discover credit accounts or collections that aren’t yours, you’ll need to file a police report and dispute the errors with the credit bureaus. The Identity Theft Resource Center at www.idtheftcenter.org has fact sheets and other helpful information to guide you through this process.
If you have been the victim of identity theft, you should at least put fraud alerts on your reports at the three bureaus and consider freezing your credit. A fraud alert signals to lenders that they need to verify the identity of anyone trying to open an account in your name, while a credit freeze would prevent the lender from accessing your credit reports, which should halt new credit accounts altogether unless you “unlock” the report in advance. Again, the Identity Theft Resource Center has more information.
If you don’t spot any obvious problems, it could be that the retailer was using outdated information. You can ask it to reconsider its decision, although most issuers are reluctant to reopen accounts once they’re closed.
If you’re concerned about further account closures, simply use one or two of your cards to make small purchases each month and pay the balances off in full. This should prevent further account closures.