During the hectic holiday season few consumers give it a second thought. This makes it easy for them to hurt it without realizing it.
There are steps you can take to ensure your credit doesn’t take a hit, so you can relax and enjoy this festive season.
Why Protecting Your Credit Matters?
There are several reasons why it’s important to keep your credit score in mind over the holidays. You don’t want to start the new year off learning that it has drop several points.
Lower scores will make it harder for you to get loan approval, for everything from vehicles to mortgages and credit cards. If your application is approved, you will be paying higher interest rates. Even though it only took a few weeks for it to drop, consumers often find that it can takes years to repair.
How to Keep Your Credit Score from Falling
Want to protect your FICO score and credit history? Here are a few steps that will help you keep it safe.
- Don’t open any new lines of credit.
The holidays are a time for presents, vacations and festive gatherings. This also means you will probably be spending more money. It might be tempting to apply for a new credit card, but doing so will hurt your score. Every time you fill out a credit card application, an inquiry is made.
The loss of a few points is temporary, but it can still impact you financially. You might find it more difficult to be approved for a low interest loan. How many points you lose, and how long it takes to recover, will depend on the average age of your other accounts or financial history.
- Try to keep balances low.
One of the main factors that determines your credit score is the total amount of your debt. This includes credit card balances. Scores often drop when card holders are close to reaching their limit.
Consumer Education Manager for Experian, Sandra Bernardo, recommends using 25 percent or less of your available credit. Budgeting for the season ahead of time, will help you avoid running up your credit card debt.
- Don’t take out a personal loan.
Personal loans might be a smarter decision financially. They come with fixed interest rates that are lower than ones offered by credit cards. You also know the date the last repayment will be due, and exactly how much you can spend.
Even though these loans do have advantages, there is a downside. You are opening another line of credit, and this can affect your score. There will be an inquiry into your history, and this temporary dip could last for several months. If other lines of credit are already maxed out, adding a new one will add to your debt total. This is also factored into your credit score.
- Avoid payday loans.
Rowe Price, a global investment management firm, noted that 11 percent of parents surveyed took out a payday loan during the holidays. The one advantage of these loans, is that they do not appear on your credit history.
However, there are several downsides. Interest rates are higher, and repayments are typically due weekly. Failure to keep up with your payments usually send your account to a collections bureau. This will appear on your credit report, and it can take up to seven years before it is removed.
- Pay bills on time.
It’s easy to forget due dates for bills during the busy holidays. This is one thing that you don’t want to do.
Even one late or missing payment can cause it to drop.
Setting up automatic payments is the best way to make sure your bills are always paid on time. This does mean that you will have to pay attention to your bank account balance to ensure there are enough funds to cover the payments.
- Avoid holiday scams.
Unfortunately, the holidays come with plenty of scams. Falling for one can have a devastating effect on your credit. The best advice to follow is “if the deal sounds too good to be true, it probably is.” Do not give out any personal information over the phone or in response to an email.
Emails advertising significant savings from retailers, if you fill out a short online form, is one of the most common holiday scams. Once they have your name, birthdate and social security number, it is easy for them to assume your identity. Phone calls from charities asking for a donation is another favorite ploy with scammers.
- Keep an eye on your credit report.
The best way to protect your score is to monitor it. You can check it for free through the online site, Credit Karma. Most banks also offer credit monitoring tools at no cost, if you have an account with them. You are entitled to three free credit reports a year from the credit reporting bureaus; Equifax, Experian and TransUnion.
Monitoring your report allows you to catch any mistakes and petition to correct them. It also allows you to watch for any signs that your identity might have been stolen.
Protect Your Credit and Enjoy the Holidays
The holidays are a busy time of year, and can quickly become expensive. This doesn’t mean that your credit score has to suffer. Have a budget in mind that includes surprise expenses, do not open new lines or credit and monitor your score.