How Holiday Shopping Impacts Your Credit

Before you begin your holiday shopping this year make a plan to budget. Most people who overspend during the holidays have failed to think about their budget at all. This type of spending can impact your credit, and likewise your financial future.

We would like to help you better understand how holiday shopping can impact your credit if it is not well planned. Review these holiday shopping strategies to help you decide how you will approach this holiday season.

Charging Now, Paying Later: No Budget

This strategy for holiday shopping can be a disaster to your credit if you overspend. Your credit score will drop if you max out the limit on a credit card, make late payments, or default on a payment.

Additionally, making the minimum payment on a high interest credit card may not be enough to cover the interest each month. Credit card debt like this not only makes it difficult to get out of debt, but it also effects your financial future by dropping your credit score.

If you are a home owner, learn more about using your home’s equity to pay off higher interest debt in our previous blog post: “Smart Ways to Use Home Equity.”

Using Credit Wisely: Budget

There is a way to use credit wisely and build your credit score during holiday shopping. Building a healthy credit score is all about showing that you use your access to credit responsibly.

Follow these budgeting tips this holiday season:

• Don’t charge more than you can comfortably pay back within a reasonable amount of time. (3-4 months)
• Charge less than 30% of the credit limit on any credit card.
• Use different credit cards/store cards
• NEVER “max out” a credit card (You should never charge 100% of the credit limit)
• Don’t forget to make room in your budget to pay all of your bills on time.

Read more about how your credit score is calculated, in this article.

Cash Only: Budget

Buying gifts and doing your holiday shopping with this strategy is a healthy spending choice. However, using the cash in your pocket or money directly for your bank account does not build your credit score.

Using the money you already have prevents you from over charging a credit card. Make sure that you have enough cash remaining after your holiday shopping to pay all of your bills.

Remember that the holidays aren’t about spending money, they are about spending time and making memories with the people you love. If you do some holiday shopping this season, create a budget and a smart financial strategy that positively impacts your credit score.

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