Your Credit Score Can Be Affected By Holiday Credit Card Spending

Gifts, food, and travel costs can all add up quickly during the holidays. It can be detrimental to your credit score, however, if you charge all your expenses to a credit card and plan to pay it off later.

Use your credit card wisely this holiday season. Here’s how holiday credit card spending can impact your credit score.

CREDIT UTILIZATION RATIO

A major factor that affects your credit score is your credit utilization ratio, which is the amount of credit you are currently using. If you have two credit cards with a combined credit limit of $2,000 and your balance is $500 on each, then you are using a quarter of your available balance, and your utilization is 25%.

Credit scores can be negatively affected by high utilization rates. It’s often recommended to keep your card balances under 30% even though there isn’t an “official” utilization level.

CREDIT CARD APPLICATIONS

If you do a lot of holiday shopping in retail stores, you may often be asked at the checkout counter if you would like to sign up for a store credit card in exchange for a discount or rewards points. Those immediate benefits may seem appealing, but it is important to understand how credit card applications can impact your credit.

A hard inquiry shows up on your credit report when creditors check your credit report before approving your credit card application, which can lower your credit score. A single hard inquiry shouldn’t cause too much harm, and you can recover fairly quickly. However, multiple hard inquiries within a short time period can lower your score more than you are comfortable with.

You should avoid opening too many credit cards at once, and make sure there are clear financial benefits before you apply for a new card.

LATE PAYMENTS

Getting into financial trouble over the holidays can put you at risk of not being able to pay your bills on time, which is bad for your credit. A single late payment can hurt your credit score, especially if it was in excellent shape before. Your payment history makes up the single largest factor in your credit score.

High balances can make it difficult for you to pay your credit card bill on time, and even make it harder for you to pay your other bills. Consequently, it’s beneficial to avoid missing a payment as much as possible.

PROTECT YOUR CREDIT AFTER THE HOLIDAYS

Avoid spending more than you can handle this holiday season to protect your credit. If you did end up taking on too much debt, you need to work on paying it off. By lowering your credit card balance, you can improve your credit utilization ratio, save money on interest, and make it easier to pay your bills on time.

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