When holiday shopping, it’s important to find the right balance of when to use plastic and when not, and to understand your credit status before you give your cards a workout. Fortunately, some planning and precautions can help ensure you use credit wisely this holiday season.
Before you start using credit cards for holiday shopping, take a look at your credit score and report. Knowing your current credit status will help you better understand how much (or little) credit you can afford to use this season. When you enroll in a product such as freecreditscore.com, you are provided access to tools that can help you understand how your spending behaviors impact your credit score and report, while tracking both over time.
Once you understand your current credit status, next decided which purchases you’ll make with credit cards. Credit makes sense for some types of purchases more than others.
For example, when online shopping, a credit card offers convenience, security and consumer protections that aren’t present with debit cards. Using a credit card for a big-ticket item, such as consumer electronics, can also help you break the cost down into more manageable, incremental payments (although you’ll pay interest, too). For smaller in-store purchases, like wrapping paper or stocking stuffers, cash may be a better option.
One tip that financial planners recommend is to choose just one card for your holiday credit purchases and remove all others from your wallet. Use it for both in-person and online buying. Opt for the card with the lowest interest rate on purchases or the one that gives you the best reward points for using the card. Using just one card allows you to better track your spending and limits the risk of identity theft or fraud if your wallet is lost or stolen while you’re shopping.
Avoid the temptation of using store cards or opening new accounts in exchange for a temporary discount. During the holidays, this type of incentive abounds, but store cards often charge higher interest rates that offset the discount you received in exchange for opening the account. And, each new account you open will cause a credit inquiry to show up on your credit report. Too many inquiries in too short a time can lower your credit score.
Finally, pay off holiday purchases right away, rather than carrying a balance. If you won’t be able to pay off a balance within a month (or two at the most), it may be time to reassess your holiday spending and adjust your budget accordingly.
Holiday shopping can be fun and rewarding as long as you control your spending and use of credit cards. There’s no need to go into debt or damage your credit. A little planning, and understanding how each financial decision impacts your credit, can help keep the holiday season – and your financial future – bright.