Outdated US card technology is putting consumers at risk of fraud and stolen identity. This is the surprising conclusion of a survey carried out by the magazine Consumer Reports in June 2011. They reveal that old magnetic strip technology is easily copied by crooks intent on making effortless bucks.

Most developed countries which increasingly rely on credit and debit cards to transact their daily business use chip and pin technology that makes it more difficult, though not impossible, for thieves to clone cards. The magstripe card is easy to clone. Using a hidden camera, crooks record the number and pin. They can then swipe a blank card through a machine which sets it up for business and can rob your account of thousands of dollars in a swift spending spree.

The reason for the US backwardness in coming forwards with the new technology is simply cost. They lose less in compensation to the victims of fraud than they would have to pay out to update the technology. Although they will refund you any stolen cash, it could take you months to recover what is taken from your account and in the meantime, your bank balance can take a severe body blow.

There are a few tricks you can use to increase the protection to your cards.

• Always be alert for any signs that an ATM machine or gas station payment machine has been tampered with. This could be something that looks strange about the keyboard, an unfamiliar overlay, for example, indicating the presence of a hidden camera, a light flashing at the wrong speed or anything that seems out of the ordinary.

• Self-help: guard the keyboard with your spare hand; do not accept help from well-meaning strangers, especially in foreign countries; try to find an ATM inside a bank or other secure building. Report anything that looks suspicious to the issuing bank.

• Change your pin frequently.

• Self-help: Never keep your pin near your card. If you have to make a note of it in order to remember it, make sure that the number is disguised.

• Choose a number that isn’t immediately obvious to a thief.

• Self-help: Serial numbers should be avoided. Make it more difficult for a thief to guess.

• Check your statements weekly and immediately report any unfamiliar, suspicious activity on your account.

• Keep your card with you at all times when paying the check, for example at a restaurant. If the card machine cannot come to you, go to the desk and pay.

Before you decide to cancel your credit card, you need to first determine that it’s a good idea to do so. Even after you pay off your credit card debt, it is important to think twice before canceling credit cards. This is because whenever you cancel a credit card, it affects your credit score in a negative way.

Your credit score is based, in part, on how much credit you have available. When you cancel a credit card, you are reducing your available credit. Additionally, if you still have other credit cards with debt, you are lower your credit utilization score. Consider the following example:

You have three credit cards:

1.      Limit: $2,500; Balance: $500; Available: $2,000

2.      Limit: $3,000; Balance: $2,500; Available: $500

3.      Limit: $3,200; Balance: $0; Available: $3,200

As you can see, you have a total limit of $8,700. You are using $3,000 of that, leaving $5,700 available for credit use. Right now, you are using close to 29% of the credit available to you meaning that you have a fairly favorable credit utilization ratio. If you were to cancel credit card #3, though, all of a sudden you would only have $5,500 available, and now that $2,500 means that you using 45% of the credit available to you. Using that much of your available credit can drop your credit score.

As you can see, it may not be in your best interest to cancel that credit card, especially if you plan to apply for a loan in the next six months. For large purchases, like homes and cars, you need to have a good credit score in order to get a good interest rate. A lower credit score can result in you paying hundreds more in interest charges over the life of your loan. So, before you take the plunge with canceling credit cards, make sure that you actually want to do so.

If you do decide that you want to cancel a credit card, and if you are not planning on making a significant purchase using a loan in the next six months, there are some steps that you should follow to ensure that your cancellation has the smallest possible impact on your credit score:

1. Pay off the balance: Do not cancel a credit card when you still have an outstanding balance on the card. While you can cancel in this situation, in order to keep the same card terms until you pay off the balance, it does not reflect well on your and your credit score. Credit card issuers are now required to give you 45 days’ notice before raising interest rates (unless you have missed a payment), so try to see if you can pay off your credit card in that time. If you can’t pay it off that quickly, do a cost-benefit analysis of how long it would take you with the new interest rate. If you can pay off the balance in two or three months after the rate hike, you should probably wait to cancel.
2. Call the credit card issuer: Your next step, after your statement shows that you have a balance of $0, is to call your credit issuer. Let them know that you are canceling your credit card, and that you wish the record of this cancellation to show that you initiated the closing of the account. Be aware that you will not be able to use your credit card from this point on.
3. Send a letter to the credit card issuer: In addition to calling the credit card issuer, you should send a letter. Write a letter that includes your name, address, account number and the date. State that you are closing your account, and that you want the record to reflect that you asked for the account to be closed. Print out two copies (keep on your computer). File one copy in a safe place. Mail the other copy to your credit card issuer, via registered mail. You will have to pay for this service, but this ensures that the issuer gets your request, and you will receive a receipt when the issuer signs for the letter. File the receipt with your copy of the cancellation letter.
4. Follow up on your credit report: After 30 days, check your credit report to make sure everything is as it should be. If the credit history reports that the credit card issuer initiated the account closure, you will need to have that fixed. Contact the credit card issuer, and the credit bureau, in writing (via registered mail for everything), requesting that your report be changed. It does make a difference.

Once everything is recorded properly, you can cut up your credit card, never to use it again. If you have other credit cards, it is a good idea to try and pay them off as quickly as possible. Even if you have a $0 balance, it is usually a good idea to keep one or two credit cards for emergency purposes, and for continued credit score maintenance. Make one or two small purchases with each card every month, and pay off the balance in full each month. This will reduce the chances that you will have your credit card account closed by the issuer.

Bottom line: Whenever you close a credit account, you will see an impact on your credit score. There is no getting around that. However, if you cancel your credit cards correctly, and practice good credit habits afterward, the impact will be smaller.