The level of spending from consumers regarding credit debt increased in recent months, which could force some of them to shop a bit less this holiday season.
Credit card debt is the most pressing concern among consumers, according to a report from myFICO. Close to two-thirds noted they will spend fewer than $500 on credit cards during the holiday season, while only one-fifth of those surveyed explained they will open an additional account.
Consumers are preparing for an extended period of payments for their purchases during the holidays. The report noted that 25 percent will need the next three months to pay their credit card bills for their purchases. This figure was lower than 20 percent two years ago.
One-third of consumers noted they plan to keep their credit cards in their wallets, unless it is for the most expensive purchases, the report explained. Another 50 percent noted their intention to make all of their purchases with a credit card.
"Keeping revolving credit low can have a positive impact on an individual's credit score, since this accounts for almost 30 percent of a typical score," said Anthony Sprauve, spokesperson for myFICO. "While consumers are using credit cards more this year, it's important not to get carried away. Payment history is the most influential factor when determining an individual's FICO Score; therefore it's critical to pay at least the minimum amount on all credit cards every billing cycle."
Credit scores can be impacted by holiday spending, and this concerns some consumers. The report noted that 14 percent felt their purchases will have an effect on their score in the long-run.
The report added that more than 60 percent of those polled felt the risk of identity theft was worrisome, while only one-fifth said they are trying to protect their accounts from such issues.
Holiday spending may help credit scores
While some don't feel comfortable using their credit cards for holiday spending, smart purchase plans could help improve their credit score substantially. In an analysis of credit score records, The Wall Street Journal explained that those who have the highest scores typically have a larger number of credit cards.
Those who have the highest score level typically have around four credit cards, the newspaper explained. It is important that these consumers don't just hold onto them, but actually use them frequently. Additionally, these people have approximately $8,500 or more in loans, not including a mortgage.
"Having good credit doesn't mean having no debt," Maxine Sweet, vice president of public education at Experian, told the news source. "To show you are a good credit customer, you have to show you can manage debt."
However, many consumers can't just start using credit and expect to have a great score. The news source explained that this comes with approximately 25 years of solid credit. Some younger people can attach themselves to their parents' credit, if it is good enough. Meanwhile, it is necessary to have all bills paid on time, which may be important for those who have holiday spending. Of those in the highest category, 4 percent have missed a payment at least once, while 99 percent of this group have actually never had a collection notice.
Some consumers look to spend more around holidays
While there may be caution from some consumers about spending, a similar report explained that many consumers will spend a larger amount of money for the holidays. According to the American Research Group, consumers will spend more than $850 on average during the holidays. This is much improved from the previous year's average of $646, which is an increase of more than 30 percent. The last time spending averaged such a high level was in 2007.
The amount of spending consumers plan to do through merchants totaled an average of $1,245, the report explained. This was significantly higher than last year's figure of $714, as well as $967 in 2007.
Catalogs are also a popular purchasing channel, as 40 percent of those polled noted their intention to use these. The total spending amount projected for this year is $808, on average – unchanged from last year.
Only 18 percent noted they will plan to pay the full price for items, the report added. This was far lower than the 54 percent who said they would specifically wait for sale items. Additionally, close to 30 percent noted this would depend on what the purchases are.
Those who are worried about their credit spending levels getting out of hand may want to consider getting credit help from a professional firm. This could help them get back on their feet and make them feel confident about spending money again.