Tag Archives: Credit Score

Holiday Shopping Tips: Avoid Credit Mistakes

12 Nov

One of my all time favorite holiday movies is Jingle all the Way, a film based on a father tracking down that most desired, ultimate christmas toy of the season for his son. If you haven’t seen it I highly recommend, especially with less than 2 weeks until Black Friday, one of the most anticipated shopping days of the year! Some people have even been planning their attack since last year. Ever wonder why it’s called Black Friday? This shoppers’ holiday that got it’s name because that’s the day retail stores supposedly begin to become profitable or move into being “in the black” for the year. There is no hard proof this is actually what happens, but the crowds of people and diehard camp-out overnighters definitely support the cause.

For the five weeks following Black Friday, we will spend either shopping or returning at retailers both in store and online. And while it’s kind of a holiday buzz kill to bring it up, there are some pretty significant mistakes you can make while shopping, if you’re not careful.

Don’t Fall For Retail Credit Card Offers

Many popular retail stores offer a credit card that can only be used at one chain of stores that has a credit limit of around $1,000.
This card has an interest rate of 24.99%.

The interest rates on general credit cards like Visa, MasterCard, Discover, American Express would be that high if you A) had poor credit when you initially applied, or B) missed payments and ended up at or near the credit card’s default rate.

Of course, when you’re at the register and the clerk offers you a 10%-20% discount, you’re not really thinking about account terms and credit limits. You’re also not thinking about how those retail credit card inquiries on your credit reports are the most damaging type or how even modest purchases on a retail store card can leave it leveraged to the point where it can damage your credit scores. Be smart and don’t get caught up in the hustle and bustle of the way to save a quick buck this holiday season.

Chose Credit Over Debit and Cash

This is a very counter-intuitive piece of advice because it’s common knowledge that using cash and debit cards will help control your spending, whereas credit card spending can easily spin out of control, especially during holiday shopping euphoria.

The suggestion of using credit over debit, or cash for those who are responsible spenders is even more encouraged during holiday season.

When you use a debit card for purchases, it’s your money that is taken directly from your checking account. That means any purchases that get disputed will drag against the balance of your checking account, including those that may be fraudulent (fraudsters work overtime during the holiday season).

The Fair Credit Billing Act, as well as the rather generous consumer protection policies of gold standard issuers, like American Express, protect purchases made using a credit card. You can’t say the same thing for the purchases you made using cold, hard cash.

If You Do Chose Credit Over Debt, Choose The Tallest Card

When you use a credit card for holiday shopping, choose the credit card with the largest credit limit.

Using the card with the highest limit helps to protect your credit scores, which could be important for those of you who are not going to be able to pay off your balances in January and have plans on buying a home or refinancing an existing mortgage.

The issue at play when choosing the right card is the balance to limit ratio. The percentage of your credit card credit limits that are currently being used in the form of a balance is a driving factor of your credit scores. The value of that percentage is misrepresented all over the web. Some people say it’s worth 30% of your score (incorrect). Some people say you should keep the percentage no higher than 20% (nope). According to FICO, the folks who invented credit scoring, the people who have the highest scores have an average utilization percentage of 7%. It’s easier to be close to 7% when your credit card has a $20,000 limit rather than a $1,000 limit.

That’s why you have to choose the card with the highest limit.
Trying to find that perfect gift while holiday shopping is already stressful enough. Do yourself a favor and be smart in the way you buy that perfect gift! After all the hustle and bustle is over and the smell of pine needles leave the air, the last thing you want is a stack of bills and even worse, a bad credit score that will linger long after the holiday season.

The Skinny of this holiday shopping tip:

1. Don’t fall for retail cards that have a high amount of interest with little benefit. They can destroy your credit if you are not careful.

2. Chooses credit over debit or cash in case of the large amount of purchases that increase chances of fraud and possible disputed charges.

3. Choose the credit card with the highest limit so that your balance to limit ratio does not ruin your credit score.
Adopted from MintLife Blog – Top 3 Credit Mistakes to Avoid While Holiday Shopping

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