It’s the holiday season, so you might be pulling out your plastic almost daily to pay for gifts, a new outfit for the office Christmas party or food for a feast. But even during this festive time of year, it’s smart to think about your credit score.
“The holidays are a time of year when people might not be paying as much attention to what they’re doing in terms of spending and using credit,” says Anthony Sprauve, director of public relations for myFICO.com, which in November surveyed 2,400 consumers about their holiday spending plans. About 30 percent of consumers said they wanted to cut back on their holiday spending this year, and 14 percent are worried about how their seasonal spending will affect their credit scores.
“If you want lower interest rates for everything you might buy in the future, including a home, you need to protect that score,” says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies (AICCCA).
Here are eight tips that will help you keep your credit score as shiny as those presents you just wrapped:
1. Make a gift list: Many shoppers make lists to remember that they’re getting, say, Tinker Toys for Timmy and a wok for Aunt Wanda. But, whether you keep your list on a piece of paper in your pocket or on your smartphone, it’s important to also jot a dollar amount next to each name.
“People need to go shopping with a plan of attack,” Sprauve says. “You need a list that’s clear: I’m going to spend $20 on Grandma and $20 on Uncle Joe. And stick to it.”
2. Say “no” to new store cards: Just like those sugary Christmas cookies at the office, it can be hard to resist a shiny new credit card.
“You’re standing at Banana Republic with an armload of gifts and the cashier says, ‘You can save 10 or 15 percent if you open our card,’ ” Sprauve says. “That can be very tempting.”
“Retailers know people like to spend those cards right up to the max and carry balances,” Jones adds. “It’s not a good deal for the consumer.”
Opening too much credit can hurt your score, he says. For example, if someone who doesn’t make a lot of money gets several new credit cards, suddenly it looks like they have more credit than they could easily pay back. “That’s going to scare credit grantors,” Jones says, and cause your score to drop.
3. Call a credit counselor: If you need help setting a gift budget that won’t break the bank, or even figuring out how to repay your holiday debt while keeping your credit score pristine, Jones suggests calling a credit counselor. The AICCCA has a toll-free number (866-703-8787), and consumers can call and talk to a certified nonprofit credit counselor on the phone for free, Jones says.
“You don’t have to be in a desperate situation,” he says.
4. Watch your card balance: Know your available credit (the credit limits on all your cards added together), and keep track of your balances. That’s important because 30 percent of your FICO score has to do with the amount of debt you carry, according to Sprauve.
“Holiday shopping can run up your balances,” Sprauve says.
It’s a good idea to shoot for keeping your balances to 20 percent of your available credit, Sprauve recommends. For example, if you have three credit cards, each with a $5,000 credit limit, then you have $15,000 in available credit, and you’d try to keep your balances to $3,000 total at any given time.
5. Be strategic about payment: Even if you pay off your balances in full every month, holiday shopping still can give your credit cards a workout, making you look like a big spender. So, consider making two payments each month.
“Here’s a little trick,” Sprauve says. “Halfway through the month, pay half of what’s owed. Pay the rest at the end of the month.” This helps you keep your balance lower in relation to your total available credit, and that can help keep your credit score solid, he says.
6. Stay on top of your finances: “Paying your bills on time — every bill, every month, every time — is the most important thing you can do for your credit score,” Sprauve says, noting that payment history makes up 35 percent of your credit score. He recommends setting up alerts on your smartphone or online calendar to remind you in advance of bill due dates.
“That can be very helpful to make sure you don’t forget to pay bills at this crazy time of year,” Sprauve says.
7. Plan ahead to pay off your bills: It would be ideal to pay off your credit card bill as soon as you get it, but that’s not the holiday reality for many consumers. About 25 percent of those surveyed by myFICO.com said they’ll need more than three months to pay off the debt they racked up over the holidays, and that’s up from 18 percent in last year’s survey. Experts say you should figure out how long it will take you to pay off your debt and the total dollar amount you’ll pay in interest.
Don’t overextend your budget, which could hurt your credit score in several ways, Jones says. First, he says, if you have a history of paying off your bills every month but suddenly you owe so much you can only pay the minimum, that sends a signal that you’re struggling financially, which can lower your score. Or, “The worst thing would be for someone to spend so much over the holidays that, when January rolls around, they have to miss a payment or two — or even go after more credit,” Jones says.
The result? A big hit to your score.
8. Reign in the holiday excess: It’s normal to spend a little more than usual in November and December, but big changes from your normal spending patterns can make you look like a risky bet for creditors, Jones says. If you always pay your bills on time, it won’t look too bad if you spend more or even max out a few cards during the season.
“But a major change, like maxing out all of your credit cards is not a good idea — it could be a red flag for credit grantors,” Jones says.