How the Holidays can affect your Credit Score
Tis the season…to be spending.
Yes, with the holidays fast approaching, chances are you’ve made your list (and checked it twice). But when it comes to holiday spending, you want to be sure that your credit score doesn’t get naughty, but stays nice. With all the spending you’re likely to do, combined with the increased threat of scammers this time of year, keeping your credit in good shape can be easier said than done. That’s why we’ve put together this handy list of tips and suggestions for how to prep for the holidays, while keeping your credit score in good shape. Here’s a look:
Tips and Suggestions for Holiday Spending (While Protecting Your Credit Score)
- Use credit cards, not debit cards, to minimize impact of fraud: Any type of fraudulent purchase made on your credit or debit cards isn’t good, but those made on debit cards have the tendency to be a lot more impactful than those made on credit cards. That’s because the money spent can take more time for you to get back – and scammers are spending money that you already have in your account, not money that you’re promising to pay back later, as is the case with a credit card.
- Be careful about where you shop: Another important tip to safeguard against scammers – be careful where you’re shopping, especially when it comes to online shopping! We get that things can get expensive around the holidays and you’re looking to save where you can, but be cautious about where you’re providing your credit card information. Look for the padlock symbol to verify site security, and if a deal seems too good to be true, know that it’s likely because it is too good to be true.
- Watch your credit utilization ratio: We strongly suggest that you only charge purchases you know you can pay off before the end of the year, but regardless of your situation, it’s important to watch your credit utilization ratio, which is your debt versus your total credit allotment. Ideally, you want to keep this ratio at 30 percent or less for it not to lower your credit score. For example, if your credit limit on a card is $10,000, you want your spending to be $3,000 or less.
- Refrain from opening new lines of credit: New credit cards don’t just have the potential to impact your credit utilization ratio, but every time you apply for one, your credit information is pulled, which also lowers your score.
- Make on time payments: This accounts for 35 percent of your FICO score, so it’s incredibly important to make on time payments with any and all bills. Failure to do so will almost certainly lead to a significant drop in your credit score. In a perfect world, you should try carrying a zero balance on your credit cards and only charge what you know you can pay off each month. That’s not realistic for everyone, but regardless of the situation, making on time payments should always be a priority.