This post was featured in the Huffington Post on 12/2/2016.
December is upon us. Christmas and Chanukah decorations have appeared throughout our neighborhoods and many of us have faced the bad news that stepping on the scale delivered after the Thanksgiving feast.
Some of us have already completed our shopping for Holiday gifts, taking advantage of the “special offers” that came with Black Friday and Cyber Monday.
According to the Los Angeles Times, the busiest shopping day of the year is not Black Friday, but rather the Saturday before Christmas. Additionally, the busiest online shopping days take place on the Monday or Tuesday a week or two before the week of Christmas.
So, it stands to reason, that a large number of us still have shopping to complete and many other of us are just starting to think about the process.
Whether you find yourself with just a few items remaining on your shopping list or if the list has not yet been contemplated, it is important that you consider your credit score and credit history when you head out to shop. Here are five credit related items to keep in mind while checking off the people on your “Nice” list:
1. Your Credit Card Utilization
One of the primary factors that go into computing your consumer credit score is “Credit Utilization.”
In its simplest terms, credit utilization is a fraction. The amount of credit that you have available to you on credit cards is the bottom half (or denominator) of that fraction. The amount of credit that you have used is the top half (or the numerator) of that same fraction.
For example, if you have $1,000.00 dollars’ worth of credit available to you and you charge $500.00 on the credit card or cards that you own, your resulting credit utilization rate is 500/1,000, or 50%. If you don’t pay any portion of that 50% off when your bill comes, your credit utilization rate will be computed by the credit bureaus at that 50% rate. That level of utilization will damage your potential score. Not as bad as 75% utilization or 100% utilization, but it will leave credit scoring “points” on the table.
If you want to help your score, it is best that you spend only at a level that will allow you to pay your credit card bill down to 30% (or less) when it arrives in January.
2. In Store Credit Card Offers
If you make a purchase at a national retail store like Target or Macy’s during the holiday season, it is likely that you will be offered a discount on your purchase if you apply for and use that store’s credit card when you checkout. The offer is typically something like a 10% or 20% discount on all purchases made on the day that you make the credit card application.
Offers like this can be very tempting. (That’s why the stores make them!)
But, think about the following:
1. Research has shown that people tend to spend more money when they use credit cards in lieu of cash. The spending likely increases even more if you are given a “one day only”, limited time discount. If the 10% discount only applies to purchases made that day, you are very likely going to spend more money on that trip to the store than you had initially planned to.
2. Interest rates on store cards are high, often in the range of 20 to 25 percent. Whether your credit score is 620 or 850, you will receive that same high-interest rate. If you use the credit card to finance a big purchase, the cost associated with that high-interest rate would quickly eliminate any savings you received if you don’t pay the bill off in full upon its arrival.
3. When you apply for a store card, it will show up as a “hard” inquiry on your credit report. Although the hit to your credit score will not be massive, you could potentially lose five or ten points. If you are planning on applying for a mortgage or auto loan in the next few months, those points could cost you a significant amount of money.
If you find yourself unable to resist the urge to apply for and use the store card, it bears repeating: be sure to pay the statement balance in full and on time when it arrives. At the very least, pay the balance down to no more than 30% of the available balance.
3. 0% Interest Offers That Aren’t Really 0%
When you are ready to buy something in a store, or online, you might be tempted with an offer of 0% financing. Pay close attention to exactly what you are being offered. Not all 0% offers are the same.
Sometimes the offer will “waive” the interest during a certain, set promotional period (for example, “90 days”).
Other times the offer does not waive the interest, but defers it, instead. If you fail to pay the balance in full during the defined time, the retailer may retroactively charge you interest for that full period. In that instance, you never received the benefit of 0% interest at all. You should only consider utilizing this type of offer if you can pay the balance in full during the defined period.
Before signing up for any of these sorts of offers, “READ THE AGREEMENT”, make sure you understand whether the interest is being “waived” or “deferred.”
4. If You Must Finance Gift Purchases, Plan Ahead
No one should be going into debt to finance holiday purchases. However, if you have no option other to borrow money, you should plan. Rather than accepting an offer at a store, you should shop in advance for a 0% credit card offer with waived interest.
Once again, “READ THE AGREEMENT.” Make certain that any interest on the account is truly being waived. In that instance, if you still have a balance after the applicable waiver period, interest will only be charged on the remaining balance and no retroactive interest will be charged to your account.
5. Consider Giving Yourself the Gift of a Credit Restoration Expert in 2017
If your credit score is already damaged, perhaps the best gift to give yourself is one of a credit restoration expert. You can attempt to fix damaged credit issues on your own, but the process can be hard work. It will require your time, patience, diligence and perhaps some aptitude for understanding what the credit bureaus and collection agencies are required by law to do.
Instead, you may want to consider giving yourself and your family the gift of the services of a professional, reputable credit restoration company to help you along the path to better credit.
Research the company that you are considering and ask them how the work of restoring your credit gets done, and who does it. Look for a company that employs credit experts who are educated about credit and who will provide you with personal service.
Happy Holidays! May your days be merry and bright! Keep the items discussed above in mind during the holiday season and give yourself the gift of a higher credit score. It’s a gift that keeps giving, throughout the year.