The holidays are a great time to spend on your credit cards. Be sure to avoid these mistakes so you don’t get into financial trouble.
If you’re like most Americans, your credit cards are probably going to be put to the test this holiday season. Spending on gifts, travel, and entertainment is part of the holiday season, and many people choose to charge for their purchases.
Doing holiday shopping with your credit cards can be a great thing because you can get credit card rewards for doing so. But it can also put you in financial trouble if you don’t use your credit cards responsibly. If you don’t want your credit card use to get you in trouble, be sure to avoid these four credit mistakes this holiday season.
1. Charge more than you can repay
It’s easy to get caught up in the moment and bill for expensive gifts or expensive holiday meals. Unfortunately, if you don’t have the money to pay your bills when the statements come in, you won’t have a very good year. You don’t want to start 2019 in debt — and you don’t want every vacation purchase to cost you more because you’re stuck paying interest.
The good news is that these results are easy to avoid. Just set a budget for how much you can afford to spend and stick to it. You can track your spending manually by logging into your card’s online account and listing vacation transactions on a spreadsheet. You can also use money management apps like Mint and tag your vacation spending on your transactions list so you can see in a second how much you’ve already spent.
Once you hit your budget limit, stop billing more things for the holidays unless you can rework your budget and find more money available to make sure the bills are paid.
2. Maximize your credit cards
Using all the available credit on your cards may seem harmless if your goal is to charge as many of your vacation purchases as possible. The only problem is that maxing out your cards could hurt your credit score. This is because credit bureaus look at your credit utilization ratio and you are penalized if that ratio is over 30%.
Your credit utilization rate is calculated by dividing the amount you charged by your available credit. If you charged $500 on a card with a $1,000 limit, your usage rate is 50%. Ideally, you want to keep the ratio as low as possible to get the best credit score – you certainly don’t want to max out the cards.
3. Register for a private card
It is common at the cash register for store employees to ask if you would like to register for a credit card. Many stores offer special promotions if you do, especially during the holidays. If you’re making a big vacation purchase and you’re told you could save 10% just by opening a store card, you might be really tempted to fill out an application.
But there are a few reasons why you should resist. A big problem is that opening the store card will lower your credit score. You will get a new inquiry on your credit report when you apply for the card and the inquiry will remain on your credit report for two years. Too many requests reduce your score.
You’ll also get a brand new card, which lowers the average age of your credit accounts. Average credit age is another important factor that determines your credit score, and age is considered best so you can show that you’ve been a responsible borrower for a long time.
Finally, you should resist the urge to sign up for store cards because you’ll usually be inundated with coupons and special offers once you get a card. This may seem like a good thing at first glance, but it may tempt you to spend money on purchases that you otherwise wouldn’t have made.
You don’t need the temptation – or the blow to your credit – that comes with opening a store card, so just say no if asked.
4. Not taking advantage of credit card rewards
While you don’t want to abuse your credit cards while on vacation, you do want to use them. If you use them wisely and responsibly, you should be able to earn plenty of credit card rewards.
To maximize the rewards you earn this festive season, make sure you’re using the right card at the right store. If a card gives you bonus points for gas, consider using it to buy gift cards at a gas station if you were planning to give gift cards as gifts. If another gives you points for dining, load up restaurant gift cards to present to people you don’t know what to buy for.
Making purchases through your credit card company’s online portal – if it has one – can also lead to bonus rewards, and many card companies have special offers you can sign up for online to increase even further. the more your reward points. If you are unsure if your card has an online portal or special offers, log into your account to find out or call the creditor and ask them not to leave free money on the table.
The holiday season doesn’t have to lead to credit errors
Now you know some of the top credit mistakes to avoid when shopping this holiday season. You can take steps to make sure you don’t make these common mistakes so you can use your cards in a way that benefits you. Your vacation will be a little happier when you’ve maximized your rewards, but avoided paying interest on your purchases.
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