Credit Report Q&A

Holiday OVERspending – common pitfalls and solutions.

Dear myFICO,

During the holiday season last year, I really damaged my credit – I saw my FICO credit score drop almost 40 points from October to January! Can you give me some advice on how to avoid hurting my credit this holiday season and help me spot common pitfalls that could lower my FICO credit score?

Diane
Atlanta, Georgia

Dear Diane,

The holiday season can bring more surprises than a pair of argyle socks or a knitted sweater embroidered with your name – it can also cause the post-holiday blues when you get your credit card statements after the last of the eggnog is gone! Retailers bombard you with special promotions like 10% off of your total purchase by opening a department store credit card with them. These offers are hard to resist when you want to get your family and friends the perfect gifts, so I understand the temptation to charge, charge, charge. I'll give you a few tips and reminders about how to best manage your credit so you don't once again fall down into a FICO® hole that you need to climb out of.

Problem #1 – charging more than you can pay off.
It's common to go a little overboard during the holidays – those iPhones that everybody wants this year aren't cheap! It's easy to rationalize that this is the "giving time" of year and it's okay to charge a little more than usual. This is only true if you're not "giving" so much that you're unable to pay off your credit cards. Receiving credit card bills that you can't pay off can leave you stuck with paying interest on the balances. This is not only money wasted on interest, it's also probably hurting your FICO score – particularly if you don't typically carry balances on your credit cards. This year, try to budget so that you only charge what you feel comfortable that you can pay off the following month.

Problem #2 – opening new lines of credit for a small savings.
Retailers love to tell you how opening a department store card can save you an extra 10% or 20% on your purchases. We've all done the math at the register when the cashier offers to save you 10%; hmmm, so that's $15 bucks off these $150 leather boots by opening this card – tempting all right. The bad news is these department store cards typically charge very high interest rates, so if you carry that $150 balance for even one month, you'll be giving that $15 savings back and then some. Not to mention, each time you open one of these new credit accounts might be dinging your FICO score. As a general rule, don't accept the new credit offers when shopping; that small saving today, most likely isn't worth it in the long run.

Problem #3 – leaving town and forgetting to pay your bills.
If you plan to visit friends or family this year, make sure you pay any bills that are due before you leave town. Traveling during the holidays can exhaust all of your energy and a good chunk of your sanity, so it's easy to forget little things like mailing in your credit card payments. One sure way to hurt your credit is to forget to pay your bills, so this year make sure that you're current with all your bills before heading to grandma's house.

I hope this advice helps you avoid these common holiday credit mishaps. There are many more ways to damage your credit during the holidays and the best defense is to know exactly what types of factors your score considers – this free booklet summarizes the components of your FICO score and explains how your score is calculated.

Sincerely,
myFICO Team

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