The holiday season is officially upon us! I, for one, am very excited for the Friendsgivings, holiday parties, family events and not to mention the big shopping holidays of Black Friday and Cyber Monday!
But before your eyes go wide with the promises of deeply discounted gifts for your families, it’s important to review the basics of using credit. I am not making the assumption that you all use credit cards to purchase your holiday items but for those of you who are or are considering, take a read.
Treat Credit Like Cash
If you can’t afford something, don’t buy it. It’s so important to pay off all your credit card balances in full at the end of each billing cycle. To ensure your aren’t overspending, it’s helpful to create a budget of how much you are willing to spend on gifts for loved ones.
Personally I make it a game for myself. I set a threshold on how much I am willing to spend per friend or family member and see how many meaningful items I can get them within that budget.
Most people don’t realize that your credit usage is one of the primary drivers of your credit score. The trick is to keep your credit usage at or under 30% of the available credit given to you to drastically improve your score. If you find yourself with credit usage over 30%, it can quickly pull down your credit score. Something to avoid!
As an example, if your credit card company has provided you with a credit care with a line of credit of $10,000, a 30% utilization rate is $3,000. For the consumer, this means that you need to keep your credit card balance at or below $3,000 at all times.
As someone who uses their credit card for all purchases, I find there is often overlap between billing cycles and when bills are due. This translates into having a balance that is equal to more than one month’s worth of credit card charges. All that to say, don’t read example above as, I can spend $3,000 per month on a credit card. If that is the case, you will definitely exceed the 30% credit usage threshold.
Avoid In-Store Credit Cards
Each store you stop in will be more than willing to offer you their in-store credit card enticing you with an additional 15% of your purchase. While it may be tempting in the moment to get an extra deal on that robe you purchased for you mom, it’s best to just say no.
In the context of your credit score, your number can be negatively affected by too many lines of credit. If you make it a habit of opening a new card at every store you shop in, you may see a drop in your credit score.
The other drawback of having multiple credit cards is having to track multiple billing cycles and balance amounts. Having multiple credit bills makes things particularly complicated if you are like me a track your household cash flow each month. While this could be solved with setting up an automatic payment feature on each of these accounts, I have found that not all retail credit cards allow that feature. Just be warned!
Consider Using Points
If you have a credit card with a cash back or point accumulation feature, consider using those points or cash to pay for or help supplement those holiday celebrations and gifts. If the goal is to keep your holiday gifting within the limits of your cash back, that is a super easy and efficient way to set a holiday budget!
Hoping you walked away from this post with either a better understanding of how better your credit score or a new idea on how to approach the inevitable spending that comes with the holidays.