Your credit score probably isn’t at the top of your list of things to worry about during the hustle and bustle of the holiday season. After all, you have Christmas gifts to buy, parties to plan, greeting cards to send and maybe even holiday vacations to finance.
But there are many ways you can hurt your credit score during the frenzy of the holidays, said Sandra Bernardo, consumer education manager for Experian. And the negative effects can last well into the new year. A low credit score can make it difficult to get credit going forward, or force you to pay higher interest rates on lines of credit.
Take these steps to protect your credit score so you can enjoy the holidays without having to worry about the long-term impact of a low score.
1. Avoid Opening New Credit Card Accounts
During the holidays, clerks might pressure you to open a store credit card account. “It’s a great way to get a discount,” you’ll likely be told. It can be tempting to listen, especially if you are aiming for cheap holidays this year. But while you might save a little money initially, your credit score can take a hit.
Opening a credit card — or several at once — will result in hard inquiries that appear on your credit report. “Hard inquiries occur when a financial institution, such as a lender or credit card issuer, checks your credit in order to decide whether to approve you for a loan or credit card,” Bernardo said.
Those inquiries can lower your credit score. The dip might be temporary, depending on other factors — but it’s a dip nonetheless. “So it may be best to resist the temptation of opening retail cards to get that coveted discount,” Bernardo said.
If you don’t have many other credit accounts or a long credit history, opening several new accounts will have a bigger effect. That is because it will lower your average account age, according to myFICO.com, the consumer division of credit scoring agency FICO. A shorter average account age can hurt your score.
2. Don’t Max Out Credit Cards
Maxing out credit cards to cover holiday gifts will hurt your credit score, Bernardo said. The amount you owe on credit accounts is among the biggest factors impacting your credit score. If you’re using a high percentage of your available credit — that is, if you’re close to maxing out credit cards — your score might drop.
Bernardo said you should avoid using more than 25 percent of available credit. For example, if the total credit available on all your credit cards is $10,000, don’t carry a balance of more than $2,500 across those cards.
To avoid maxing out credit cards, Bernardo recommends creating a budget and monitoring spending as you shop. “Make sure to include room in the budget to cover unexpected expenses, and don’t be tempted to use credit for more than you can afford,” she said. A survey by Experian found that 31 percent of consumers racked up credit card debt as a result of unexpected expenses during past holidays.
3. Resist the Urge to Take Out Loans to Pay for the Holidays
Getting a personal loan to cover holiday spending can be a smarter move than relying on credit cards. The interest rate might be lower and it will be fixed. In addition, you can’t spend more than you have borrowed, and you have a clear end date for repayment.
However, you will still be taking on a new line of credit and adding to your overall debt. “When you take out a personal loan, it may negatively affect your score because it’s a hard inquiry to your credit report just like any other extension of credit,” Bernardo said. “So your score may take a dip temporarily.”
Beware of payday loans. A survey by T. Rowe Price found that 11 percent of parents have turned to payday loans to cover holiday spending. These short-term loans don’t typically show up on credit reports from the three main credit bureaus. However, if you don’t pay the loans back, they can go into debt collection. At that point, the debt collector might report the information to the credit bureaus, causing it to affect your credit score, according to the Consumer Financial Protection Bureau.
If you have to take on debt to fund holiday shopping, it might be a sign you can’t afford Christmas. Instead, you might need to trim your Christmas gift list, or let friends and family know you need to opt out of giving gifts this year. Creating your own handmade gifts is another way to reduce holiday spending.
4. Make Payments on Time
It is fun to buy holiday gifts. But remember, those expenditures need to be paid off later, Bernardo said. Holiday distractions can cause you to forget to make payments on time. It’s easy to overlook a credit card statement sandwiched between all of the other mail arriving at this time of year. Or, you might miss an electronic statement in an inbox full of holiday-sales alerts from retailers.
Your payment history is the biggest factor in determining your credit score. It accounts for 35 percent of the score, according to myFICO.com. Fail to make payments on time, and it can negatively impact your score, Bernardo said.
To avoid making late payments during the holidays, set up automatic bill pay through your credit card issuer or bank. Make sure you pay at least the minimum amount that is due. Ideally, you should pay more than the minimum. That way, you reduce debt faster and pay less in interest.
Related: 6 Tips to Get the Best Holiday Loan
5. Be Careful Where You Shop
Consumers are expected to spend more of their holiday budget online this year, according to a survey from Deloitte University Press. However, many consumers aren’t taking steps to protect themselves against fraud and identity theft when shopping online.
Experian found consumers are willing to take risks — such as making purchases from an unknown or unsecure website — to get a good deal. In fact, 23 percent said they would risk becoming a victim of identity theft for a good deal on Cyber Monday, the major online sales event the Monday after Thanksgiving.
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But that is a mistake. If identity thieves get your personal information, they can open new accounts in your name and rack up debt, which can send your credit score tumbling. You can dispute the fraudulent accounts and charges, but the process can take a while.
“One of the best things you can do to protect your identity is to be cautious about the websites you visit,” said Paige Hanson, chief of identity education at LifeLock. “If possible, try to do all of your online shopping with familiar brands you already trust.”
Also, always look for a green padlock symbol and “https” in the website address to verify that it’s a secure site, Hanson said. Don’t submit your account information at checkout if a site doesn’t ask for the three-digit or four-digit CVV code on the back of your card.
6. Watch Out for Holiday-Related Scams
Consumers can put their credit score and identity at risk by giving out personal information such as their name, birth date and Social Security number to get special offers, Hanson said. “Fraudsters often take advantage of consumers by sending phishing emails, hoping to bait you into taking action,” she said.
For example, criminals might send you emails that appear to be from retailers offering great deals if you click on a link that takes you to a phony site. The fake site will then collect your personal information as you enter it. Another variation on this scam is an email that appears to be from a charitable organization asking for a holiday donation.
Don’t click on any links within an email. “It’s always best to call the company or organization directly and confirm the inquiry, as opposed to taking the bait,” Hanson said. Don’t risk your personal information ending up in the hands of identity thieves who can wreck your credit.
7. Monitor Your Credit Report
Checking your credit report is the best way to find mistakes that can lower your credit score. You might also find other signs of fraud. In a press release, Rod Griffin, director of public education at Experian, recommended checking financial accounts and monitoring your credit report and credit score throughout the holiday season.
The three credit bureaus — Experian, Equifax and TransUnion — allow you to check your credit report for free at Annualcreditreport.com. You can pay a small fee to get your credit score from each of the bureaus or from GoFreeCredit.com.