Don’t Let Summer Holidays Worsen Your Credit Scores

Now that summer is here, the kids are out of school, and the weather is getting very hot, many people around the country are now turning their attentions to the vacations they will take later this summer. And while the idea of a beach or mountain getaway for a weekend or even a full week might be extremely enticing at this time of year, it's also important to remember how expensive such an excursion can be.

If you're planning on going on just such a trip this summer, keeping the cost in mind can be of the utmost importance. When people go on vacations in general, they tend to spend far more than they do in their everyday lives. Obviously, staying in a hotel or renting a cabin or condo can get expensive very quickly, but even beyond that there are other considerations to keep in mind as well, and all of them can combine to cost you a lot of money. That, in turn, can put your credit in danger, especially if you're not prepared for it.

The problem with overspending
One thing you may not realize about your credit card debt is just how much it can affect your credit rating. It makes up the second-largest portion of your ratings, accounting for a full 30 percent, in a very specific way. In fact, it's not so much how much debt you have, but how much debt you have as a percentage of your total available credit limits that makes up a score, and the closer you are to 100 percent, the lower your score will be. In general, the best way to make sure this portion of your score is as high as it possibly can be is to owe no more than 30 percent of your maximums at any given time.

For example, let's say you have three credit cards with a total combined credit limit of $10,000. Suppose you have the average amount of credit card debt of anyone in the U.S. (about $4,800) across those three accounts, meaning that you're borrowing roughly 48 percent of your total limits, well above that 30-percent limit. Already, your credit score is not as high as it possibly could be, because having that much debt outstanding in general makes you a slightly riskier investment in lenders' eyes.

So how does that relate to your vacation? Well, when you go on vacation you are extremely likely to put your hotel room on your credit card, and far less apt to carry cash, which in turn means you'll be using your credit cards to make everyday purchases while you're on your trip. That includes eating at restaurants for two or three meals a day, buying souvenirs, taking tours or visiting museums, and other expenses you might typically run into when you're staying away from home for a few days or more. The total cost of doing so can obviously add up very quickly, and potentially further erode your credit score by taking up a much more sizable portion of your maximums overall.

If you were to spend $1,000 on hotels, restaurants and other vacation necessities over the course of a week — which is obviously well within the realm of possibility — adding that to your existing debt could significantly destabilize your score and put you in a more precarious position going forward.

What to do?
Of course, this type of spending is often unavoidable. So the best thing you can do, then, is to simply start preparing for the eventuality in any way you can. This could include making an effort to pay down more of your debt in the weeks ahead of a trip so you can get your "credit utilization ratio" down to a number that's easier to manage. You could also create a savings plan so that you won't spend quite so much during that trip, or in such a way that you'll be able to pay more of those added balances off almost as soon as you get back. Taking the time to understand the damage this much added debt can do to your scores, and also to work harder to keep that extra damage as limited as possible, will likely help to keep your score as strong as possible.

In addition to insulating yourself against the damage of added credit card debt, you might also want to take the time to order copies of your credit reports either before or after your trip to make sure there are no unfair markings having a negative impact on your standings. If you notice any such entries dragging you down, it might be wise to contact a credit repair law firm as a means of potentially sorting the issues out as quickly as possible.