Could Holiday Shopping Wreck Your Credit?

More than 60% of U.S. consumers have little or no concern about how their holiday shopping will affect their credit, according to a survey from TransUnion.

There are two ways to look at that statistic: We can give consumers the benefit of the doubt, inferring they plan to exercise smart credit practices like avoiding debt and keeping their credit card balances low this holiday season. Not everyone goes on a spending spree at the end of the year, right? Not everyone has credit cards, either, though 80% of those surveyed said they plan to use credit cards this holiday shopping season.

Of course, the other conclusion we can draw is that the majority of Americans are ignorant of how their spending habits impact their credit scores. In truth, it’s probably a mix of those things, but here’s how holiday shopping can affect your credit, so you can avoid the most common offenders.

New Credit Cards

It’s common to be inundated with credit card pitches when shopping during the holidays — it’s fair to be tempted by an offer of 15% off, a $50 credit, free shipping or whatever the retailer is selling. Those savings could make a huge difference in your budget.

Try not to go crazy, though. Applying for new credit will result in a hard inquiry on your credit report, which will ding your credit scores a little bit. Applying for a lot of new credit cards means a lot of little dings, which can translate into a significant score change, and you will see those effects for the next six or 12 months. This isn’t to say that you shouldn’t take out new credit cards during the holidays, but you should be strategic about it.

You should definitely check your credit scores before you apply, because you don’t want to apply for credit you have no chance of getting, and you also want to know if losing a few points is more damage than you’re willing to absorb right now. You can get two of your credit scores for free on Credit.com with updates every 30 days so you can see how your actions affect your scores over time.

High Credit Card Balances

You’re probably going to spend more in November and December than you do most other months, and that’s fine. Ideally, you’ve saved for the increase in spending or have adjusted other budgets accordingly so you can pay your credit card bills as planned.

Still, just because you can afford higher credit card bills doesn’t mean you should rack up the charges without a second thought. You may want to spread out your spending among different credit cards, because your credit utilization is calculated not only from your overall credit limits and overall balances but also on individual cards. You may also want to spread out your spending across several billing periods or pay your balance multiple times within a bill cycle, so whenever your balance is reported to a credit bureau, it remains as low as possible.

Experts generally recommend your credit card balances making up less than 30% of your credit limit, but the lower, the better. You can also check your credit utilization when you get your credit scores on Credit.com.

Going Into Debt

The holidays may be the most tempting time of year to overspend. If you drive up your credit card balances to the point you can’t pay as much of the bill as you’d like, you’re going to have to make some adjustments in the coming months to bring your debt levels down, which in hindsight, may not be worth the joy you felt spending that money in the first place.

Having credit card debt is not itself a bad thing for your credit, but ever-growing balances are. It goes back to the credit utilization thing. If you get to the point where you can’t even afford the minimum payment, you’re going to start producing a negative payment history, which is even worse than having high credit utilization.

You’ve heard it before, but we’ll say it again: Plan as best you can so you don’t overspend and go into debt during the holidays. Sure, it’s a challenge, but try to think of the long-term impact on your finances. Getting out of credit card debt can take years — you can see exactly how long using this free calculator — and bad credit can follow you for even longer. Keep that in mind these next couple months.