3 Credit Score Holiday Shopping Pitfalls
My friends at Ross Mortgage recently invited me to guest blog on their At Any Rate blog to talk about the dos and don’ts of using credit cards during the holiday season. It was Kelley’s first time doing a video blog, here’s a sneak peak of what we discussed:
Don’t be tempted to open new credit cards (no matter how good the deal is) 3 Credit Score Holiday Shopping Pitfalls
In the spirit of Black Friday and the holiday shopping season, credit card companies and merchants alike will be offering “special deals,” such as cash-back bonuses, reward points and exclusive discounts for opening new credit cards. Don’t let these offers tempt you to open new lines of credit, especially if you plan on purchasing a home in the near future.
Do spread your credit card debt over multiple credit cards
Spreading your purchases across three to five credit cards, as opposed to putting every purchase on one card, will help keep your balance for each card below 50% and minimize the impact on your credit score.
Kelly: Hi my name is Kelly Ross with Ross Mortgage Corporation here with…
Dave Sullivan Marketing Director for Credit Technologies Inc.
Kelly: We thought it would be important for David to come in and talk about the use of credit over the holiday season. All the
consumers will be out there in full force on Black Friday which in a couple days. They will be getting a lot of offers for discounts and to open a credit cards.
Kelly: We want some input from you on how to maintain good credit now and throughout 2014 and 2015.
Dave: Kelly, have you ever been in line to make a purchase and have the store clerk offer you 10% off on a new purchase?
Kelly: I love that!
Dave: Well the problem is that you really run into two negative impacts on your credit score:
1. The inquiry, so when they check your credit, it creates a hard inquiry and could impact your credit score by up to 40 points.
2. You have a new account and it doesn’t have a long history so FICO really doesn’t like that. It can ding your score like 50 to 60 points, right out of the gate, from just one new account.
Kelly: David, you are saying I can’t get that 20% discount if I buy something?
Dave: Well you can get a discount, but it may negatively impact your credit score.
Kelly: What if I open it and close it right a way?
Dave: The problem is you still have the inquiry for six months and you have a new account opened & closed. Two factors credit scores is not going to look at favorably.
Kelly: So what else can I do?
Dave: Well, a great thing to do is go back through your credit report and look for accounts that maybe you haven’t used in a while. They should have a long credit history. That is very important if you reactivate older credit cards, it is a great way to access credit and get the things you need without applying for new accounts.
Kelly: That is very good to know, so if I have a bank card, lets say it has a $500 dollar balance and the credit limit
is $1000 dollars. How much more can I put on that and what is the optimal amount to have on that card?
Dave: Well you really don’t want to go over 50 percent of the high credit or the credit limit which means that on that thousand-dollar card your’re all ready at 50% of the high credit. If you have to go above 50%, I think you need to be careful because the higher you go above 50 percent the more of a negative impact it will have on your credit score.
Try to keep the balance right around 50 percent. Then after the holidays try to get that down to 5 – 9%, if you want to get the best score possable. Fifty percent and lower you’re probably in good shape, but if you want to get the best score possible it is 5-9%.
Kelly: So you’re saying that we should not open the store cards even if they’re giving a discount and I have one visa and it has a $750 dollar balance and the credit limit is $1,000 dollars. I think that is good because I only have one, but no, you really should have 3 to 5 credit cards and maybe spread that balance out over all those cards?
Dave: You don’t really want to have any pne credit card balance maxed out. If you have to spread out a large amount spread it evenly over the three to five bank cards that you have already.
Kelly: So, it sounds like we will be shopping hard. Using our cash and credit cards the right away this holiday season. I hope everybody got some tips on this. Thank you, David.
Dave: Thank you Kelly, Happy Holidays
3 Credit Score Holiday Shopping Pitfalls
To get more tips on using credit wisely during the holidays, read the full blog post on Ross Mortgage’s At Any Rate blog.