What’s in store for your credit this holiday shopping season?
Holiday shopping season is upon us. Whether you’re looking for a good deal on something you’ve wanted for a while or finalizing a list of gifts, there’s one thing you may not be paying enough attention to: your credit. Fortunately, we’re here to help with some pointers for you, whether your credit is in good shape or might need some work.
If you already have good credit…
If you already have good credit, congratulations. That’s a real achievement for which you should be proud. Here are a few things to consider as you approach holiday shopping:
- Consider rewards cards. These could be store cards, but also ones that offer flexible points, airline miles and more. Just make sure you’re not applying for too many cards at once, because too many credit inquiries may negatively affect your credit health.
- Keep an eye on your utilization rate. That’s how much you’re spending as a percentage of your credit limit. If you’re considering making a big holiday purchase, you may want to ask your credit card provider if you qualify for a credit limit increase.
- Don’t overextend yourself. Chances are, if you already have good credit, you’ve been paying your bills on time. Make sure to keep doing so. And even if you can only make minimum payments, be careful about carrying a balance. That could lead to quite a holiday hangover with interest charges coming due in January.
If you don’t have good credit…
If your credit health isn’t where it needs to be, that’s okay. There’s always plenty of time to improve. It also doesn’t mean you have to deprive yourself during the holiday shopping season or feel bad. You just have to be disciplined and plan ahead. Here are a few ways you could do so:
- Draw up a holiday shopping budget. It doesn’t have to be fancy, but you should write down or type out how much you can afford to spend for everyone you’d like to get a gift for. That’ll help you avoid taking on debt you can’t pay back on time, which could put you in a tougher position down the road.
- Don’t close credit card accounts unless you really need to. You may think closing credit card accounts right before the holidays would be a good way to stay disciplined about your spending. After all, if you don’t have as many credit cards, you don’t have as many to spend with. The problem with this is if you close accounts, especially ones you’ve had for a long time, that will lower your average length of account, which may end up hurting your credit health.
- Treat your financial self. If you’re struggling with debt, missed payments or a credit blemish from the past, you can take significant steps to get to a better credit place. Take some (or all) of the money you might’ve spent on holiday shopping to pay down debts or save for a rainy day. Your future financial self will thank you, and you can still buy or make meaningful gifts for your family and friends.
If you haven’t yet established a credit history at all…
There’s a third and important credit category to discuss: those with a thin credit file or no credit at all! This is common for young people in high school or college who haven’t had a chance to build a credit file. Here are some holiday shopping credit tips for this group:
- Consider applying for a store card. Sometimes, retail credit cards have lower credit limits than others, which may make them easier to qualify for without a credit history. Plus, if you’re shopping at a store you really like, you could earn perks spending with the store’s card.
- Apply for a secured credit card. Secured credit cards typically require that you deposit some money to use the card. These types of cards can be a win-win for the first-time credit user and the creditor. The former gets to establish a credit history, while the latter doesn’t have to bear the risk that the account won’t be paid off on time.
- Ask to be an authorized user on a trusted family member’s card. This isn’t a license to become an authorized user on your parents’ cards and go on a shopping spree. Rather, it can be a nice way (assuming the main cardholder handles credit responsibly) for you to establish a credit file. Typically, what gets reported to the primary cardholder’s credit report also gets reported to any authorized-user reports. That means, as an authorized user, your report will start showing the primary cardholder’s credit behavior, helping you build a credit history. Just remember to make sure it’ll be good credit behavior!
The bottom line, when it comes to credit and holiday shopping is the same as it is throughout the year (with maybe just a little more cheer!). Make sure you can make all your payments on time, don’t overextend yourself debt-wise, and don’t apply for too many new accounts during too-short of a time period.