Did You Know…how your credit score is likely to be used this holiday season?
We’re roughly one month away from the beginning of the busiest shopping season of the year. Millions of people will descend on shopping malls and retail websites to buy holiday presents. And while credit scores are not likely at the top of any gift-givers’ priority lists, you’d be surprised just how active those scores might be.
First and foremost, if you apply for a new credit card or higher spending limits on existing cards for the holiday season, the card issuers will probably request your credit score from one or more of the national credit reporting companies (CRCs), Equifax, Experian and TransUnion. The same is true if a new car is on your shopping list or if you choose to open a store credit card account. Just as they would at any other time of year, those score inquiries from lenders can cause a dip in your credit score.
The shopping-season strategy here is twofold: You want to maximize your score before applying for this holiday-related credit, and you want to avoid having these holiday loans lower your score in advance of any major borrowing you may be planning in the early months of the new year.
Since you want to get the best available borrowing terms on any new loans you seek for the holidays, you should try to get your credit score as high as possible before applying for credit. Ideally that means you’ve got your outstanding card balances as close to zero as possible and at 30 percent or less of their spending limits. Ideally, it also means you’ve allowed a few months of timely payments to pass since the last time you applied for credit, since inquiry-related score drops typically rebound within a few months, as long as you continue making your payments on time.
Conversely, if you plan to seek major loans in the spring (e.g., if you’re considering a new home or car purchase in spring or early summer), be aware that your holiday-season borrowing could keep your credit score from being in peak condition when you apply for those loans.
So, what do you do? There are several ways you can protect your scores during the holiday season to avoid any inadvertent negative score impact.
Credit scoring systems will consider and potentially penalize you if you have too much credit card debt appearing on your credit report, so the goal is to prevent holiday debt from showing up on your credit reports. Here’s how:
Any part of a new
outstanding balance that you pay off before it appears on your monthly
statement will never appear on your credit reports. So log in to your
credit card account and make a payment before the Statement Closing
Date, which is almost always exactly 21 days before your due date. If
you do this routinely, you can get the convenience and safety of using
credit cards for holiday shopping without hurting your credit score.
If you start using that trick before the holidays, you’ll be rewarded with a higher credit score in the new year. Think of it as an early resolution.