Improving Your Credit: The Gift That Keeps on Giving

With the holiday season fast approaching, you may be planning your gift list, pulling out decorations, and preparing for the festivities. If you’re like 50% of consumers, you may have even started your holiday shopping.

Amid all the excitement, it’s easy to lose sight of something important: your credit score. Fortunately, you can improve your credit score while you enjoy the holidays. You just need to be strategic about your spending.

So, how can you boost your credit this holiday season? Below, we’ll discuss nine ways to do just that.

Table of Contents

Step 1: Create a Gift Budget and Check it Twice

Did you know that the average American spends around $1,500 during the holidays? What’s more, four in ten consumers go into debt to subsidize this spending. These consumers may:

Charge an existing credit card
Take out a new credit card or loan
Leverage Buy Now, Pay Later plans

Using credit to pay for holiday gifts won’t necessarily hurt your credit, but you need to be mindful of your balance sizes. Getting carried away with holiday shopping can spike your credit utilization.

Credit utilization is worth 30% of your FICO credit score. It’s calculated by dividing your total credit balances by your total credit limit. To maintain a high credit score, you want to keep your credit utilization below 30% at all times. Large credit card charges can quickly push your credit utilization past this limit.

How to Keep Your Holiday Spending in Check

If you want to keep your balances at bay, carve out some time to set up a realistic budget before you hit the shops. Make sure you can afford your allotted amount without pushing your credit limit past 30%.

Keep in mind that gift shopping isn’t the only thing that may elevate your holiday spending—you should also factor in:

- Decorating
- Entertaining
- Traveling
- Day-to-day expenses

Once you’ve established a clear budget, you can revel in the holiday cheer, knowing your credit score will still be intact once the new year rolls around.

Step 2: Don’t Open Store Credit Cards

Sales clerks often promote retail credit cards during the holidays. While opening one of these cards can score you discounts, it can also ding your credit score. That’s because new credit card applications require hard inquiries into your credit reports.

Hard inquiries can lower your FICO credit score by up to five points temporarily. If you apply for multiple store credit cards, the impact may be more significant.

Another downside of store credit cards is that they typically have low credit limits. Thus, even wracking up a moderate balance could lead to high credit utilization.

Step 3: Request a Credit Limit Increase

If you want to shield your credit score from a sudden spike in credit utilization, there’s an easy solution—simply ask your credit card issuer for a credit limit increase. If you’re in good standing with your lender, there’s a decent chance they’ll grant your request.

With a higher credit limit, you can spend more without inflating your credit utilization by too much. Just take a look at this example:

Your credit card has a credit limit of $2,000. You intend to spend $1,500 on gifts and decorations this holiday season.
You have $500 in cash to put towards these purchases, meaning you’ll need to finance the remaining $1,000. With your current credit limit, this spending would spike your credit utilization up to 50% (1,000/2,000).
You ask your credit card issuer for a credit limit increase. They approve a new credit limit of $4,000.
Keeping your holiday budget the same, your new credit utilization is only 25% (1,000/4,000), which is below the recommended 30% benchmark.

Step 4: Consider Using a 0% APR Credit Card For Holiday Purchases

If you need to pay for holiday expenses on credit, you want to do so strategically. Ideally, you want to pay as little money in interest as you can. By keeping your interest fees low, you’ll be in a better position to afford your monthly payments and make them on time.

While opening a new credit card can lower your credit score temporarily, some credit cards’ benefits may offset this downside. For instance, 0% APR credit cards allow you to pay off your balance interest-free for a period of time—generally six to 18 months.

After this introductory period is over, the credit card’s new interest rate will set in. But before that, you have a golden opportunity to pay off holiday purchases without incurring any interest.

Step 5: Take Out a Personal Loan Instead

Credit cards aren’t the only form of financing you can use to supplement your holiday spending. Personal loans are another worthwhile option. These types of loans have many benefits over credit cards, including:

Fixed interest rates – Personal loans typically have fixed interest rates, so you’ll know exactly how much you owe each month from the very beginning.
Credit mix benefits – Credit mix looks at the diversity of your credit accounts. It makes up 10% of your FICO credit score. To optimize this credit scoring factor, you want to use a combination of credit cards and loans. If you already have a credit card or two, taking out a personal loan can diversify your credit mix.
No impact on credit utilization – Unlike credit cards and other forms of revolving credit, loans don’t factor into the credit utilization equation. As a result, your holiday loan’s balance won’t increase your credit utilization.

Step 6: Set Up Payment Reminders

From wrapping gifts to preparing family dinners, the holidays can be busier than other times of year. Amidst all the hustle and bustle, some people forget to make their bill payments.

If you want to strengthen your credit score, late payments are the last thing you need. After all, payment history is worth 35% of your FICO credit score. Missed payments can affect your credit score for up to seven years, though their impact decreases over time.

You can do your future self a favor by setting up payment reminders on your calendar before the holiday frenzy sets in or enrolling in auto-pay if your lenders offer it.

Step 7: Don’t Close Old Credit Accounts

With the new year around the corner, you may be re-evaluating your credit card collection. While paying down credit card balances can improve your credit score, you want to keep these accounts open if you can.

The reason? Your credit score factors in your length of credit history, which is the amount of time that your current credit accounts have been active. Length of credit history is worth 10% of your FICO credit score. Like a fine wine, your length of credit history (and its impact on your credit score) gets better with age. Unfortunately, closing credit card accounts erases their age from your length of credit history calculation.

Step 8: Ask a Loved One to Add You as an Authorized User

From Thanksgiving to New Year’s, the holiday season presents many opportunities to get together with friends and family. If one of your loved ones has excellent credit, this may be an ideal time to ask if they would be willing to add you as an authorized user.

An authorized user is someone who’s authorized to use another person’s credit card account. Even if you don’t take advantage of this privilege, your “authorized user status” will make it so your loved one’s excellent credit account activity (length of credit history, on-time payments, low credit utilization, and all) gets reported under your name with the credit bureaus.

Having a loved one add you as an authorized user is a big ask. As such, you’ll want to choose the right person and assure them that you won’t do anything to negatively impact their credit.

Step 9: Watch Out For Fraud

While the holidays are a time of giving, fraudsters often see them as a time for taking. For this reason, you’ll want to take extra steps to safeguard your identity and finances during this time.

Here are some ways to avoid falling victim to fraud during the holidays:

Shop online with caution – Online shopping can present a peaceful reprieve from the pandemonium of your local mall. However, you don’t want to get too comfortable—online shopping scams are the most likely to result in financial loss. Online payment information can be intercepted if you’re not taking the right precautions.
Scrutinize websites before you buy – Secure websites showcase “HTTPS” at the beginning of their web addresses, as opposed to “HTTP.” The extra “S” indicates that the website is encrypted with an SSL certificate, which keeps the data you share with the website confidential.
Use payment methods with fraud protection – Most debit cards don’t offer the same level of fraud protection as credit cards. As a result, using a credit card with robust fraud protection can put you in a better position to get your money back if an online fraudster swipes your payment information.
Don’t shop online on public Wi-Fi – While it’s tempting to check off some holiday shopping at your local coffee shop or airport lounge, public Wi-Fi isn’t always secure. Thus, you may want to save the online shopping for home or use a VPN while on public networks.

Another way to protect your credit from fraud is to review your credit reports during the holidays. You can request a free copy of your credit reports on AnnualCreditReport.com from each of the major credit bureaus (Equifax, Experian, and TransUnion) once every 12 months. If your reports showcase any unfamiliar activity, file a dispute with the credit bureaus right away.

Certified Credit: Keep Your Credit Safe This Holiday Season

In summary, the holidays can be a costlier time of year, but that doesn’t mean your credit score has to pay the price. By following these nine tactics, you can protect your credit score and enjoy a strong financial start to the new year.

Want more credit-boosting tips? Check out the Certified Credit blog. There we discuss many helpful credit-related topics, including:

As a leading mortgage solutions provider, Certified Credit produces a wealth of educational content for mortgage applicants. We also offer innovative products and services for mortgage lenders.

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