How holiday shopping can impact your credit score

Between the elaborate window displays, sparkling lights and tantalizing sales, it's easy to get caught up in holiday shopping fever. Here's how you can spend and keep your credit score up.

Understanding how credit scores work can help you manage your finances responsibly while enjoying the holiday season.

What you’ll learn:

• Know your limits
• Watch those debt levels
• Be responsible with store-brand credit cards
• Proactive steps

Know your limits

Credit cards are a convenient way to get your holiday shopping done, but if you get carried away, you exceed 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.

Watch those debt levels

Credit cards are meant to be a convenience, not a crutch. High debt levels trigger high-interest charges, meaning your debt grows rapidly 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 quickly.

Be responsible with store-brand credit cards

Signing up for a new credit card while shopping is not necessarily a bad thing, but it can influence your credit score. Some retailers may try to entice you into signing up for a 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 may also shorten the average age of your credit history, which may impact how lenders view your credit history.

Proactive steps

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:

• Always know your credit limit and avoid exceeding it. Most card companies will notify you if you're approaching your limit, so be sure to sign up for those alerts.
• Ensure that your spending isn't getting out of hand by making a holiday shopping budget and sticking to it.
• Notify your issuer that you want charges that put you over your credit limit declined.
• When it comes to in-store credit, limit your new cards unless they provide a clear and absolute benefit.