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The holiday season is an enjoyable and nostalgic time for many families. But once all the festive cheer goes away for another year, some people might feel as if they actually received a lump of coal in their stocking when the credit card bills start coming in to pay for the most wonderful time of the year. It can be really easy to overextend yourself financially during the holidays resulting in missed payments that can damage good credit scores in a hurry. Following these simple steps can help safeguard your credit score and not end up on Santa’s list for next year.
Pay Your Bills On Time
The easiest way to protect your credit score is to pay any credit card or store charge card bills on time for the full amount. This might seem like a no-brainer, but, approximately half of all credit cards currently have a late balance. Credit card companies will report late or missed payments to the credit bureaus and your credit history and credit score will be negatively affected.
In addition to a lower credit score, the credit card company will also charge a late fee, up to $25 with most cards, and interest. With an average interest rate of 20%, any unpaid balance can increase in expense very rapidly from the original amount due.
There are a couple different actions you can use to remember to pay the credit card on time each month. Some companies will text or e-mail a reminder approximately 10 days before the balance is due. If you always have enough money in a checking account to cover the balance, other companies will allow you to schedule auto payments on or before the payment due date.
One benefit for credit cards is that the due date for a credit card is at least 21 days from the statement date. During this time you should receive a paycheck to afford the balance due. You can also pay the current balance for a credit card before the billing period closes if you have a surplus of money at the beginning of each month and unsure if you might have enough leftover to pay the balance in full if you wait to pay the bill closer to the normal due date.
Set Spending Limits
Another easy way to safeguard your credit score is to set spending limits. Spending with a credit card is the easiest way to exceed a spending limit because credit lines usually exceed holiday shopping limits by several thousand dollars. By exceeding the spending limit, households quickly realize they cannot afford to pay the bills in full in January. For some households, it might take three months to pay the Christmas bills. Each month can have repercussions on personal credit history and going 90 days without making a payment can negatively impact your credit score for up to 7 years.
Using a debit card or paying with cash can make it easier to prevent you from breaking your spending limit. With either of these payment methods, you immediately own what you purchase and will not receive a bill a month later asking for payment. If you run out of cash you cannot buy anything else. And using debit cards or cash doesn’t affect your credit score.
Sign-Up For Fraud Alerts
The United States accounts for 47% of all international credit card fraud. If you own a credit card, chances are this is the first holiday shopping season that you will be using a credit card with an EMV security chip. The security chips will make it harder for in-person credit card theft to occur, but, fraudsters are turning to online retail databases to hack into to steal payment information now. Each time you use your credit card to make a purchase, in-person or online, there is a chance that the information can eventually be stolen by an identity thief.
Fraudsters will sell stolen credit card information to other people and they will go on a spending spree until the bank freezes the card or just enough to not raise any warning flags. Enrolling in fraud notification alerts will have your credit card company send you a text alert asking you to verify if questionable purchases are legitimate. These alerts can help prevent you from paying for illegitimate purchases. If credit card information is stolen from a credit card you rarely use, you might not think about checking the monthly account balance and can miss a bill payment without realizing it.
Enroll in a Credit Monitoring Service
Many banks offer free credit monitoring services that will check your credit report on a monthly basis to ensure no new accounts have been opened in your name. There are also free services like Credit Karma and Credit Sesame that do not require a bank account to enroll and provide a free credit score as well. In addition to stealing personal credit card payment information, it is also possible for thieves to use personal information to sign-up for new credit accounts that can also tarnish your credit score if you do not know they are open.
While paid credit monitoring services will allow you to view your full credit report each month, every person has access to a free credit report once a year by checking credit karma. This is an opportunity that everybody should take advantage of to ensure that credit card companies, mortgage lenders, or auto lenders did not accidentally misreport payment information that can negatively affect your credit score.
Do Not “Max Out” Credit Cards
One of the factors of that influences 30% of your credit score is the “credit utilization ratio” that measures the percentage of your available credit that is used. The ideal ratio to optimize your credit score is to only use up to 20% of your available credit. This means only charging $2,000 to your credit card if you have a $10,000 limit. Having a high ratio can temporarily reduce your credit score.
Do Not Apply for New Credit
Your credit score gets knocked down a few points each time you apply for a new credit card or a store charge card. Applying for a credit card while shopping might be appealing as a way to save some additional cash. But, it can also be another way to overspend and not afford the credit bill a month later. Only apply for credit cards you truly need and will routinely use. Otherwise, it is another opportunity to overextend yourself financially or forget that another monthly payment needs to be made
The most likely way that most people will damage their credit scores during the holiday season is overspending and not being able to afford the full payment in January. Credit card fraud or theft is also a possibility as the opportunity increases each time a card is used. By sticking to spending limits and reviewing each credit card transaction for potential fraud are the most effective practices to employ to safeguard your credit score this holiday season.
Author: Jeff Gitlen