Costs associated with travel, food, and gifts may rapidly mount up during the holiday season. However, if you put all of your expenses on one credit card with the intention of paying it off later, it could be bad for your credit score.
Take care when using your credit card over the holidays. Here is how using your credit card during the holidays may affect your credit score.
CREDIT UTILISATION RATIO
Your credit usage ratio, or how much credit you are currently utilizing, is a significant component that impacts your credit score. If you have two credit cards with a combined credit limit of $2,000 and a balance of $500 on each, your usage rate is 25% since you are utilising one-quarter of your available credit.
High use rates might have a detrimental impact on credit ratings. Although there isn't an "official" utilisation level, it's frequently advised to keep credit card balances under 30%.
CREDIT CARD APPLICATIONS
If you frequent retail stores for your holiday shopping, you might frequently be prompted to sign up for a store credit card at the checkout counter in exchange for a discount or rewards points. Although those instant advantages could be alluring, it's crucial to comprehend how credit card applications can affect your credit.
When creditors investigate your credit report before approving your credit card application, a hard inquiry is recorded and can damage your credit score. One hard question shouldn't hurt too much, and you can bounce back rather quickly. However, answering several difficult questions quickly may result in a score reduction that is more than you are comfortable with.
If you run into financial difficulties over the holidays, you run the danger of not being able to make your payments on time, which hurts your credit. Your credit score can suffer from a single late payment, especially if it was previously in good condition. The single biggest component of your credit score is your payment history.
PROTECT YOUR CREDIT AFTER THE HOLIDAYS
To preserve your credit this holiday season, don't spend more than you can afford. If you did wind up taking on excessive debt, you must work to eliminate it. You can increase your credit utilisation ratio, reduce interest costs, and make it simpler to make on-time payments by reducing your credit card amount.