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By Guest Blogger: TransUnion
Between the elaborate window displays, sparkling lights and tantalizing sales, it's easy to get caught up in holiday shopping fever. But it’s important to keep an eye on your spending. Going overboard could not only take a toll on your budget — it could also damage your credit score.
Understanding how credit scores work can help you manage your finances responsibly while still enjoying the holiday season.
Credit cards are a convenient way to get your holiday shopping done, but if you get too carried away with your shopping, you might go over your limit. This will usually trigger fees, and possibly a higher interest rate from your credit card issuer. You're also likely to see a notation on your credit report that you've exceeded your credit limit. This might influence how future lenders view your ability to manage your debts.
Credit cards are meant to be a convenience, not a crutch. High debt levels trigger high interest charges, meaning your debt grows at a rapid clip even when you stop spending. When your debt becomes too large a percentage of your available credit — a ratio known as your "credit utilization" — your credit score may fall. Coupled with a higher overall amount of debt, your holiday spending can cause a problem if you don't pay it off rapidly.
Signing up for a new credit card while shopping is not necessarily a bad thing, but it can have an effect on your credit score. Some retailers may try to entice you into signing up for store-brand card by offering perks, such as a 15 percent discount on your purchase or a $50 statement credit if you open a card that day. While these are clear benefits, opening a new credit card can sometimes ding your score a little. Opening a new credit account also may shorten the average age of your credit history, which may impact how lenders view your credit history.
The good news is that with just a little effort, you can indulge yourself a bit in holiday shopping without hurting your credit score. These tips can help:
At TransUnion, we believe in Information for Good. Whether it’s creating web-based financial products or sharing expert tips, insights and news on our blog, our mission remains the same: putting powerful tools and resources in your hands to help you know your credit, protect your identity and more effectively manage your financial picture.