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How holiday shopping can damage your credit score

How holiday shopping can damage your credit score

November 1, 2016
credit score
Source: Shutterstock

The holidays were once about family and getting together with those you love, but not anymore. Now, they’re more about shopping and spending a lot of money. This year’s holiday season has just started. Halloween has already passed, but Thanksgiving is just around the corner, and it will bring with it Black Friday, which, we can all agree, is a Halloween for credit cards. Whether you like it or not, whether you want it or not, you will spend. And throwing all that money on things that you probably won’t need will definitely damage your credit score.

Unfortunately, overspending has become a tradition, and more and more Americans are wasting money during this period of the year. But just because your friends are throwing their money away, it doesn’t mean that you should too. So, before you go out for another round of shopping, you might want to read up on how the holidays can destroy your credit score and what you can do to protect it.

1. Careless spending leads to only one thing: DEBT

If you want to have a good credit score, you have to be financially responsible. This means that you do not throw money away on things that you don’t need and that you definitely don’t take your credit cards out on shopping sprees.

The thing with credit cards is that they let you spend money that is not yours. So it’s sometimes easy to lose yourself and forget this important aspect of credit cards.

Unfortunately, many people spend much more than they can afford. As a result, they’re not able to pay back what they owe. And, sometimes, one missing payment is enough to start you on the road to debt. There’s nothing worse for your credit score than having debt.

2. Late payments

Even if you don’t drown yourself in debt, overspending might make you miss some payments. Your credit score won’t like this at all. Try to always make all your payments on time. If you feel that you’re struggling with this, then cut down on shopping.

3. A higher utilization rate

Doing a lot of shopping with your credit card means that you’re also increasing your credit utilization rate. In order to have a good credit score, you need a credit utilization rate of under 30%. Anything over that threshold will damage your credit. In order to keep your credit utilization rate under 30%, you also have to keep your balances below 30% of your credit limit. This means that you should at least track your spending and that you shouldn’t throw money away on useless stuff.

4. New credit inquiries

Many Americans believe they can avoid increasing their credit utilization rate by using more than one credit card when shopping. This can work, it’s true. But getting a new credit card can also affect your credit score.

When you open a new credit account, the credit card company usually does a hard inquiry to check your credit report. This affects your score, lowering it. It’s true that it won’t lower it too much, but it really is best to apply for new credit only when you really need it. You don’t need new credit just for holiday shopping.

5. A large number of new accounts

The creation of the new account will also lower your score. And this In addition to the hard inquiry. It’s because your FICO score takes into consideration the average age of your accounts.

The average age of your accounts carries much more weight than any hard inquiry. If you have an older average age of accounts, you’ll get a higher credit score. But if you apply for several new accounts, all at the same time, the average age will drop and so will your score.

Gary Morgan

Gary Morgan is a Britain transplant. Finance background, enjoys tea, politics and soccer (or football for everyone across the pond). Get in touch with him via email

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