The holiday season is always filled with joy and fun—and a lot of shopping. You probably have a list of gifts that you can’t wait to buy for your friends and loved ones this season. While shopping can be a rush, you should make sure that you pay attention to your credit score to make sure it doesn’t drop.
The last thing you want is to come out of the holiday season and into the new year with more debt, or with your credit score lower than what you would like it to be. The holiday season doesn’t have to hurt your credit. In fact, it doesn’t have to lower your score at all. If you follow these tips below, your credit should be in excellent shape for the New Year.
Avoid Too Many Credit Inquiries
You should try to avoid multiple credit inquiries at the same time. Too many hard inquiries will lower your credit score. Credit inquiries are a result of a lender checking your credit when you apply for a credit card or loan.
So why are we talking about credit inquiries during the holiday season? During the holidays, you’ll often find special deals at some of your favorite retailers – if you sign up for their credit card. And you may be tempted to apply to get the 20% discount off your purchase. If you apply frequently for these cards, the inquiries can really add up and drop your credit score.
If you do decide to sign up for a store credit card, you may want to consider a few things. Do you shop there frequently? Will you pay your balance off at the end of the month? Store credit cards tend to carry high balances so if you don’t pay your balance in full each month, it may not be worthwhile. And the inquiry definitely won’t help your credit.
This one might be a bit obvious, but it’s worth talking about. People might go overboard buying gifts for people who weren’t originally on their list, and they might go over budget. Bottom line is, it’s easy to overspend during the holidays. And overspending can lead to more credit card debt. A great way to not overspend is to set a budget. We’ll talk more about this later.
Don’t Use Layaway
Using layaway may seem like a better option than using a credit card but in reality, it’s not.
Most layaway options have fees attached to them—fees that you have to pay no matter what. These fees could be fees attached to any product, cancelation fees if you cancel your layaway, and restocking fees if you don’t pay the full amount or cancel your purchase.
Also, layaway payments occur pretty frequently. For the most part, a lot of retailers ask that you make a payment every two weeks in store. This will increase your expenses, and you may find it difficult to pay of other bills, especially if you haven’t carefully budgeted.
Every store is different so layaway options aren’t going to be the same everywhere. If you do choose to go with layaway, make sure you look over all the terms and conditions and ask any questions you might have. You’ll want to understand the layaway terms before you agree to anything. Make sure that paying for your merchandise won’t cause you to miss payments on other bills like your credit cards and that you’re not overspending.
Make Payments on Time – Despite the Holiday Hustle and Bustle
This is probably one of the most important things you can do this holiday season. Making your payments on time impacts your payment history, which makes up 35% of your credit score. If you miss even one payment this holiday season to pay for gifts, your credit could drop. If you overspend this holiday season, you may have a hard time making just your minimum payments on your credit cards. This can also hurt your utilization ratio which makes up 30% of your credit score. So, make sure you make your payments on time, and if possible, pay more than the minimum amount due.
Set a Budget
To keep yourself in check and make sure you don’t overspend, you should set a budget. Setting a budget is a great way to keep yourself on track and understand how much you can spend this holiday season.
When determining you budget, you can research how much gifts are going to cost if you have something specific in mind for someone. This can help you know how you can expect to spend. You can check with online and brick-and-mortar retailers.
You can also set aside money throughout the year to use for holiday shopping. This gives you more time to save and you can potentially save more. Other ways to save include:
- Getting a side hustle
- Getting a part-time holiday job
- Giving yourself a cushion: If you plan on spending $500 but are afraid you’ll overspend, try to save $700 but stick to your $500 budget. If there’s something you absolutely must buy, then you’ll have extra money to spend.
You can still buy all your friends and loved ones fun gifts this holiday season without watching your credit score drop. By avoiding too many credit inquiries, not overspending, not using layaway, making all of your payments on time, and setting a budget, you can make sure your credit doesn’t drop this holiday season.
Happy holiday shopping!
*This article has been updated. It was originally published November 20th, 2012.