Holiday Wreath on a Door

It’s that time of year when our spending patterns can often go into over-drive as we buy gifts, stock up on food and libations and prepare for entertaining friends and family.  Even the most budget-conscious individuals will likely see increases in their credit card balances during this time of year.

According to Gallup, U.S. consumers are expected to spend generously this 2019 holiday season.   Responders to their annual poll estimate they will spend approximately $942 (up from $885 compared to the same poll conducted last year1).  In fact, close to 40% estimate they plan to spend $1,000 or more. 

While it can be easy to get caught up in the holiday season fervor, it can be helpful to consider the following tips to help mitigate long term potential “scrooge-like” impacts on your financial health. 

  • Create a budget and stick to it.  Before heading for the mall or shopping online, spend the time to create a list of who you plan to get gifts for and the average amount you want to spend on each person.  Having this in a list format can help you stay focused and not overspend.
  • Think twice before applying for/opening new credit.  Many stores and online retailers provide incentives to get you to sign up for instant credit while you are making a purchase.  If you agree, the retailer will pull your credit report as part of the application review process and, if you are approved, that new credit account (with balances from your purchases) will be reported to the credit bureaus within the next month.  

The posting of the inquiry, reporting of the new trade and incremental balance will likely have a negative impact on your FICO® Scores.

As such, you may want to think twice if that instant 10% discount or a free gift set are really a valuable incentive given the potential impact on your credit scores.

  • A gift doesn’t have to be a material item.  Sometimes the most well-received gift is one that doesn’t cost a penny.  Helping someone out with a project, taking the time to visit a person, sending a care package of homemade baked goods are just several ideas of valuable gifts that won’t likely rack up your credit card balances.
  • Try to pay credit card balances in full.  If possible, pay your credit card balances in full to avoid costly interest fees. If you can’t, that’s okay as the holidays are about joy and giving – so don’t beat yourself up if your spending goes a bit overboard.  However, it’s important to have a plan in place to pay off those card balances in the next two or three months after the holiday season ends as those revolving interest fees can add up pretty quickly.

For example, assuming no new charges, a 15.9% interest rate and making a minimum monthly payment of $15 per month, it would take about 6 ½ years to pay that $885 balance off at an incremental cost of around $470 in interest rate fees.

In addition, carrying higher balances on your credit cards can negatively impact your FICO Scores.  Research consistently shows that higher debt levels and using a higher percentage of your available credit and are indicative of higher credit risk. 

  • Protect your personal identity. It stands to reason if you increase the use of your cards (which is common during the holidays) that you may be increasing your risk of identity theft.  Be sure to keep your credit and debit cards in a secure place on your person while shopping.  Be wary of online scams – bargains that seem too good to be true or mistakenly clicking on fake websites you’ve never used or heard of before.  Resist the temptation to access your financial data (your checking account for example) through public (unencrypted) networks.  Criminals can access/steal the information that is passed through these open networks.

While the holidays are just around the corner, there is still an opportunity to take these tips into consideration and help your 2020 financial health goals get off to a good start.

1 https://news.gallup.com/poll/267914/americans-plan-spend-generously-christmas.aspx

The following two tabs change content below.

Tom Quinn

Tom Quinn is the Vice President of Business Development for myFICO and has over 25 years of experience working with consumers, regulators, and lenders regarding credit related questions and initiatives.