Giving gifts for the holidays often involves incurring more debt. But if you stay on top of your finances and use your credit card wisely, it’s possible to stay within your budget and not overspend. The numbers tell it all. According to a Magnify Money survey in 2020, the average debt for the holidays was $1,381, a six-year high despite the nation being in the throes of a pandemic.
Below are tips on how to use a credit card for holiday shopping while managing your expenses and staying safe.
8 Tips on How to Use A Credit Card over the Holidays
1. Check Your Credit Score/Credit Report
Overusing credit cards when you have credit issues will only get in you into deeper trouble. You can avoid surprises and stress by checking your credit score in advance. Past expenses may be weighing down on your credit; your credit report shows your spending habits, allowing you to plan ahead and fix any negative or inaccurate details well before the holiday season. Charging those holiday gifts may then have less of an impact on your credit.
2. Watch Your Credit Utilization
Paying off some debt can reduce your credit utilization, or the amount you owe versus the sum of your credit limits. The optimal ratio for credit usage is at or below 30%. That means if you have a $10,000 credit limit, spending below $3,000 will maintain your current credit score, assuming all other factors are in your favor. On the other hand, the more you exceed the 30% threshold, the more impact it may have on your credit score and borrowing capacity.
3. Don’t Apply for New Credit
Applying for a new line of credit requires looking at your credit information. This hard inquiry can lower your score. Consumers who open new lines of credit before the holidays are often making a mistake. If your application is denied, it increases your rejection rate. Creditors see this as risky behavior that can decrease your chances of being approved for new credit and/or loans in the future.
4. Pay Your Bills On Time
Your payment history has the biggest impact on your credit score. If you miss payments, your score will drop significantly. It also reduces the amount of credit you can use, causes interest rates to rise, and affects your future lending power. Ideally, you should charge only what you can pay that month, and aim for a zero balance on cards. Nonetheless, the most important thing is to pay your credit cards on time.
5. Use Credit Instead of Debit
Using a debit card may avoid going into debt, but it increases the risk of fraud. If a scammer accesses your debit card, they can drain your checking and/or savings account, and your hard-earned cash. It takes much longer to return those funds than to have fraudulent charges taken off your credit card account.
6. Take Advantage of Your Credit Card’s Benefits
Many credit cards offer rewards for making purchases at certain stores or buying certain types of products. Earning points now can enable you to save on, for example, a summer vacation. Also look for cash back rewards, 0% APR promotions, purchase protection (can replace a stolen or damaged item), and extended warranty coverage (may offer coverage after the manufacturer’s warranty expires). You can also log in to your account to track transactions and expenses, so you have a better idea of what you’re spending and how much you’ll need for next year.
7. Shop Wisely
A credit card gives you great spending power. But online shopping comes with risks and the store with the lowest prices isn’t always the best place to purchase gifts. There are plenty of legitimate deals out there. However, if a deal seems too good to be true, it most likely is. Shop for well-known brands at sites you recognize, or look for the padlock symbol that verifies the site is secure.
8. Repair Your Credit
There are factors you don’t have control over. For example, a creditor or credit card bureau can make a mistake, resulting in an inaccuracy on your credit report. Errors can be damaging. You might be missing out on loans you’d otherwise be eligible for and end up paying thousands more in debt that isn’t yours. A credit repair service can kick start the process of fixing your credit, so your good spending habits pay off.
American Credit Can Help Improve Your Credit Rating
We hope our tips on how to use a credit card this holiday season are helpful. If negative information is driving your credit scores down, American Credit can address the reasons why. We skip dispute resolution and employ a pre-litigation process, so creditors are forced to provide the correct information and credit bureaus respond favorably. To learn more or receive a free credit consultation, call American Credit at 855-213-1043 today.