It’s easy for spending to get out of control during the holiday season when there are so many things to buy.
But overspending and adding to your credit card debt can negatively impact your credit score and utilization ratio. And without a strong credit score, you will find it difficult to borrow money affordably or get a loan at all. We’ve compiled six tips to help you keep your credit card in good shape during the holiday season.
Here’s how to keep your holiday spending from hurting your credit utilization ratio.
1. Set a spending limit
Set a limit and stick to it. Many people are tempted to splurge on gifts and add to their credit card debt. If you feel you must exceed your holiday budgeting, credit card points, homemade gifts or even re-gifted items are good alternatives.
2. Know your credit utilization
It’s best to use less than 30 percent of your available credit. For example, if you have $10,000 in available credit, you should use less than $3,000. A low credit utilization ratio will keep your credit score strong. Many credit card companies will let you set up text or email alerts so you can easily keep track of your balances.
3. Freeze your credit
Retailers usually offer special financing promotions during the holiday shopping season to entice you into spending more. It’s so easy to be lured into applying for a credit card. To avoid temptation, have the three credit bureaus freeze your credit. The process is free and can be done online or by phone. You’ll still be able to use your existing credit cards. You just can’t open a new account.
4. Don’t apply for retail credit accounts
Even if you never charge one dime to a store credit card, applying for these cards can harm your credit. That’s because every time your credit report is checked, it triggers a “hard inquiry.” These inquiries shave a few points off your credit score. What’s more, new accounts lower the average age of your credit, and retail stores usually offer very low credit limits. These factors also negatively influence your credit score.
5. Pay bills on time
Payments that are more than 30 days past due will devastate your credit. If you think you might forget to make a payment due to the holiday hubbub, set up autopay to ensure the minimum amount due gets paid.
6. Cut back on other expenses
Between gifts, meals, eating out, travel, and decorations, many people spend more than usual during the holiday season. Instead of racking up more credit card debt, look for ways to cut back in other areas. This will allow you to pay for more expenses with cash instead of adding to your credit card balances.
The holidays are certainly a special time of year, but don’t let the fun spoil your credit. These holiday budgeting tips will help preserve your credit utilization ratio, giving you financial security and freedom.