Will Your Holiday Shopping Wreck Your Credit?By Caitlin in Credit
Based on the way most people go about their holiday shopping and the rate in which they spend their money it’s no surprise that the average holiday shopper this year has about zero concern for how this time of the year will affect their credit.
Of course this observation could be completely wrong and in fact the average holiday shopper might have a thoughtfully planned out list and stick to their strict budget no matter what. Not everyone maxes out their credit cards during the month of December trying to purchase everyone they know the perfect gift, but unfortunately some people do. So no matter where you fall on the holiday shopping scale it’s important that you understand how your shopping can and will affect your credit. Here are the top 3 most common holiday shopping offences and how to avoid them.
The Brand New Credit Card
Tis the season for a brand new credit card, right? The credit card companies definitely think so and while it might seem like a great idea, especially with all the discounts and deals being offered, you should probably think twice before you apply for too many new credit cards.
One new credit card is a safe bet if you feel like you both need and can handle new credit. But don’t go over board and apply for every single one that is offered to you. When you apply for new credit the provider will run a credit check which in return will result in a hard inquiry showing up on your credit report. A hard inquiry isn’t that big of a deal, although it will “ding” your score just a little bit, but that’s a part of the whole new credit process. It can become a problem when you apply for many new credit cards and all of a sudden your score has been “dinged” many different times. This will have a negative impact on your credit score, an impact that will be obvious for up to a year. This is why one new credit card during the holiday season is perfectly fine, but several is a bad idea (this goes for the rest of the year too).
Another issue you should look out for is your current credit score. If it’s too low to even be approved for a new credit card then you definitely shouldn’t apply. Not only can your score not afford to be “dinged” by a hard inquiry, you should be focusing on improving your score with the credit you current have. As an extra measure of financial responsibly check out your credit score before you decide to apply for a new credit card.
The High Credit Card Balance
The last couple of months of the year always require quite a bit more spending, whether it’s for travel, food or gifts. There is obviously nothing wrong with this and ideally you spent the rest of the year putting aside a little bit extra each month leading up to December so that you’re able to pay off any holiday shopping charges on your credit card.
Even if you did this (good job if you did!) you should still try to avoid racking up a really high credit card balance. Credit utilization is a pretty big factor in the calculation of your credit score and most people don’t realize it. Carrying a high balance for even a month or two could have a negative affect on your credit score. If you have more than one credit card you should spread out your holiday shopping charges, this way you won’t max out one card and potentially hurt your credit score. If you’re looking to take your credit responsibility to the next level then you should also spread your holiday shopping out over at least two billing periods. If you only have one credit card or plan on doing all your shopping during one billing period try paying off your balance right away or at least within a couple of days.
The Out of Control Debt
With the holiday season comes the overwhelming urge to spend money and sometimes it can get out of hand. Maxing out one or more credit cards this month to the point of being unable to pay them off in full means you’re going to have to make some sacrifices later on in the year. Don’t forget that the joy you feel now spending money is only temporary and will soon be replaced with stress and annoyance.
Starting off the new year in debt is not the fresh start you’re probably looking forward to. Yes we know that most people have at least a little bit of credit card debt and that’s not necessarily a bad thing, but having an out of control balance that is constantly growing is a bad thing.
This all being said, the best gifts you can give yourself this holiday season are a list, a budget and a plan. Trying to stay out of debt as much as possible will be a challenge and you will have to put some effort into it but the end results will most definitely be worth it. Focus on your long term financial situation and goals; this should help you remember to stay on budget and start the new year debt free.