The holiday shopping season is now in full swing and retailers are aggressively tugging on our emotions implying that true happiness and the ultimate expression of your love can be only be achieved through the purchase of gifts.
I know firsthand how easy it is easy to get caught up in the hubbub of the holidays and potentially over spend or make credit-related decisions that may have longer term negative impacts. Here are some helpful tips to consider that can help protect your credit rating as you migrate through this hectic time of the year!
- Be selective when applying for a store credit card: Retailers aggressively “hawk” their credit cards and loans products to holiday shoppers often promoting free gifts and/or incremental discounts on that day’s purchases if you apply for instant credit.
Just remember, that retailer will likely pull your credit report when reviewing your application for credit. While inquiries don’t drive your credit score, they can result in a loss of points – especially if you sign up for several retail credit cards on a Saturday afternoon of shopping at the mall. In addition (if approved) that new account and associated balances will soon be reported to the credit bureau and could result in a lower score.
Lastly, the interest rate charged on retail oriented credit accounts can often be higher than the interest rate on your credit cards. Consider that if you don’t think you are going to be able to pay off the balance in full when the card statement arrives next month.
In the end, that instant credit 10% discount may end up costing you more than you saved!
- Be mindful when using credit cards to make your purchases: While paying with a credit card has many benefits (convenience, fraud protection, charge disputes, easier return processes), it can come with a high cost – especially if you build up high balances that are not paid off in full when your next credit card bill is due.
Make a list of the gifts and items you need to purchase. Determine in advance which purchases you will pay with cash (or your debit card) versus those that you will want to charge. For example, it may be prudent to purchase an expensive gift with your credit card as it provides benefits in the event you need to contest the item with the merchant. Use cash to pay for those items you know you will use and not return (like food, candy, flowers, etc.).
- Avoid taking cash advances on your credit card account: While it may be tempting to treat your credit card like a debit card and get cash at the ATM machine, it will be a costly transaction. Interest charges on credit card cash advances starts accruing immediately – so you may be paying $20+ to get access to that $100. Stick with your debit card to access cash.
Following these tips can help you enjoy the holiday season and protect your good credit rating at the same time.
Tom Quinn is the Vice President of Business Development for myFICO®, and has over 20 years of experience working with consumers, regulators and lenders and regarding credit related questions and initiatives.