The holidays are upon us, and with that comes the biggest shopping season of the year. But as you gear up with wish lists and coupon codes, you’ll want to avoid some shopping mistakes that could land you with more credit card debt than you might already have.
In the spirit of protecting your credit score, here are some mistakes to avoid this shopping season:
1. Charging More Than You Can Pay Back
It’s hard not to feel a bit of freedom when you’re out and about, or perusing online with a shopping tool (aka, credit card) that won’t immediately deplete your bank account. But it’s always important to remember that when you charge items to your credit card, you will have to pay it back—with interest. The golden rule of responsible credit card spending is: Don’t spend more than you can pay back each month. To help with this goal, there are apps you can use to help you budget your purchases—so you know when to stop swiping the plastic.
You’ll also want to make sure to not overuse multiple cards or max any of them out. Doing so will undoubtedly make your credit utilization ratio go down. If you’re using more than 30% of your available credit, your credit score can be negatively impacted.
2. Signing Up for Store Credit Cards
Anyone who has ever been shopping in-store will have heard the offer at checkout: “Would you like to save 10% by opening a store card with us today?” Sometimes it’s 15% or 20% in savings, making the offer even more tempting. However, opening a store card is not a good idea.
First, the store will have to run your credit, which will register as an inquiry on your credit report. These inquiries stay on your credit for two years and having too many can actually lower your overall credit score. Another downside? You’ll now have another credit card, and store cards have a reputation for coming with high interest rates. Ultimately, saving that 10%–20% isn’t worth what it will potentially cost you in the long run to open the card.
3. Fail to Use Credit Card Rewards
One of the major perks of credit cards? The rewards. Some cards will offer cashback or bonuses depending on the purchase or retailer. For instance, using travel rewards for travel-related gifts can help you make the most of your credit card. However, make sure you don’t just purchase a lot of expensive items just to get reward points.
4. Missing a Payment
Missing or making late payments not only impacts your credit score, but it can also elicit creditor calls and letters. While making larger payments (or paying the full balance off) is ideal, you should try to make at least the minimum payment each month so that you don’t get penalized. While you’ll end up paying more over time due to interest rates, on-time payments will keep your score in the clear.
Seek Credit Counseling
Of course, if by the end of the season you find yourself in over your head with credit card debt, you can seek help with a credit counselor. A counselor can help you create a budget and provide you with more resources to aid in repayment. They might also advise you to enroll in a debt management plan, which can ultimately help you consolidate your loans into one affordable monthly payment, lower your interest rates, and pay off your loan in three to five years.
Avoiding these common mistakes this holiday season can help ensure that your new year is debt free, but if you do get into debt, there are ways to climb back out.