CREDIT

Credit Scores and the Holiday Season

The holiday shopping season is underway! Have you thought about how you’re going to maintain or improve your credit score? You may be tempted to pull out your credit card to buy the perfect gift for someone you care about, but with the right plan, you can avoid heading into the new year saddled with debt and feel ready to tackle another year of financial goals instead. Here are some tips for maintaining and improving your credit score during the holiday season so you can start the new year off on the right foot!

Tip 1: Monitor Your Credit Score

Ahead of shopping, check your credit score. You can use free resources including annualcreditreport.com or log into your financial institution’s mobile app or website if they provide that information. Checking your credit score now will allow you to monitor it throughout the season to know if it has risen or fallen. Review your credit reports to learn the reason for the fluctuation and to become aware of areas of improvement. When examining your full credit report, be on the lookout for mistakes. If you find any, consider filing disputes so corrections can be made.

Tip 2: Build a Budget and Establish a Spending Limit

Look at your income and expenses for this month and next month. Your expenses may include groceries for any celebratory meals you prepare, seasonal travel, and any gifts you want to buy. Based on your personal finances, set a spending limit that you don’t want to exceed. Building a budget with your anticipated seasonal costs in mind is a great tool. Budgeting effectively helps prevent overspending or financing costs using a credit card and carrying a balance into the new year.

Tip 3: Plan for Credit Card Spending

More than 25% of Americans regret their level of holiday spending according to a 2022 MoneyGeek survey. Instead, anticipate your credit card spending. How much will you need to put on credit cards? Based on your budget, will you need to use credit cards at all or will using savings or a part of your monthly income suffice? If you do need to use your credit cards, refrain from increasing your balance to over 30% of your credit card limit to keep your credit score in check. If you intend to use credit cards to take advantage of cash back options or other rewards, ensure you can pay off the statement balance by your payment due date. This will help you spend within your means rather than having a balance you struggle to pay off for months.

Tip 4: Be Wary of Store Credit Cards

During this time of year, many stores offer their own line of credit to shoppers. Do your research beforehand. How often you shop at the store and discount frequency are factors to think about before opening a retail line of credit. In addition, review credit card disclosures prior to applying to become aware of annual fees and interest rates. Use the disclosure information to determine if applying is the right option for you. If you decide not to open a store card, prepare to say no when store employees offer one to you during checkout. In addition, evaluate if a store card matches up with your goals to maintain or improve your credit score ahead of the new year.

Tip 5: Pay Down Your Debt

If you have any debt going into the spending season, pay it down or pay it off if possible. This will allow you to have a clean slate ahead of buying your seasonal items. Make sure to account for any remaining debt payments when building your holiday budget too. Reviewing your current debt load and being mindful of debt payoff goals can help you avoid getting into greater debt from holiday shopping.

In that MoneyGeek survey, 40% of Americans had not paid off their 2021 holiday debt within two months. Try these tips to prevent carrying copious debt into the new year. Checking your accounts regularly and sticking to your spending goals will help fend off a negative impact to your credit score. Use your plan to enjoy the holiday season without financial stress.

Sources: https://atlascredit.com/blog/post/how-to-maintain-your-credit-during-the-holidays,

https://www.equifax.com/personal/education/credit/report/tips-protect-credit-history-during-holidays/,

https://www.moneygeek.com/credit-cards/analysis/2022-holiday-debt/