Protect your credit score—and your bank account—with these tips.
January 2, 2019 – By Tobie Stanger
Shopping and preparing for the holidays can be stressful enough without worrying about what your credit-card bill will look like in January. Try these smart credit-card moves to minimize post-holiday stress disorder and limit any damage to your credit score.
Beware of New Store Cards
Store credit cards offering 15 percent discounts and other perks can be enticing. And opening a new account can help your credit score by increasing your available credit compared to what you owe (known as your “debt ratio.”)
But when you open a new card, other factors can hurt your score, notes Rod Griffin, director of consumer education and awareness at the credit reporting agency Experian.
Once you start spending, your debt ratio—in math terms, the amount you owe divided by your available credit—starts to rise. A higher debt ratio can reduce your credit score.
You’re vulnerable, too, if you open too many new accounts. For each card application you make, the lender does a check, or “hard pull,” on your credit report. That can drop your score from 5 to 10 points.
“Opening new cards tends to backfire on your credit score,” Griffin says.
What to do: Don’t open more than one new card account this season. And be sure to pay the bill on time, even if you can’t pay it in full.
Use Rewards Cards Strategically
Putting all your spending on a single card that racks up points and rewards can seem like a no-brainer when you need to spend the money anyway.
But overusing those rewards cards can work against you by creating high balances. And if you can’t pay those big bills on time, the benefit from those rewards often vanishes.
What’s more, you may have other cards in your wallet with promotions that add up to more than the typical 2-cents-per-point you get from your rewards card, says Matthew Frankel, a certified financial planner and personal-finance blogger for the website The Ascent.
“Many card issuers have personalized cash-back offers at specific retailers,” he says.
One of his credit cards is currently offering a $15 statement credit after spending $75 at Pier 1 Imports, and $45 back after spending $175 at Hampton Inn hotels, he notes.
What to do: Look beyond your cards’ main rewards programs for promotions; you may find better offers that also align with what you need to buy now.
“If you’re strategic about these kinds of offers, it can add up to major savings throughout the holiday season,” Frankel says. “Take a minute to log on to your accounts and see what’s available.”
Spread Purchases Among Cards
You may get the most rewards from one card, but it’s unwise to use that one for most of your purchases, experts say. That’s because your credit score also is affected by your debt ratio on individual cards, Griffin says.
“You never want your balances to be above 30 percent of your credit limit in total, and on any one card,” he says. And the further below that, the better.” Ideally, aim to use 10 percent or lower of your credit limit.
What to do: Assuming you can keep track of when the bills are due—and pay them on time—try spreading your balances among multiple cards. Use the cards with the lowest balances first.
Be Cautious With Balance Transfers and Zero-interest Offer
Budgeting so you know you can pay credit-card bills in full is the best strategy for lowering your credit-card costs. At the very least, pay the minimum on time.
But on occasions when you know you’re going to carry a balance, be cautious about taking the bait with a balance transfer or card with a zero-interest promotion.
“That 6-month or year introductory period can get away from you,” Griffin from Experian observes. Once it expires, your card interest is likely to spike.
“You need to think long-term,” Griffin says. “Often in the fine print of the terms of those cards, it says your interest accrues. So if you don’t pay that off, you have to pay that interest on top of what you’ve borrowed.”
The same goes for cash advances.
“Be aware that cash advances are not ‘free’ money,” says Katie Ross, education and development manager for the nonprofit American Consumer Credit Counseling, based in Auburndale, Mass. “They come with costly fees and high interest charges.”
What to do: Don’t take out a zero-interest card, transfer balances, or apply for a cash advance unless you know you can stick to a realistic payment plan.
Stagger Your Bill-due Dates
Even if you have enough savings and cash flow over the course of a month to handle fat credit-card bills, a slew of due dates all in the same week could put you temporarily into the red, triggering bank overdraft fees and other nastiness.
What to do: If you know that perfect storm is coming, be proactive now by arranging with one or more lenders to change your due dates so they’re staggered.
“Most of the time the companies are happy to do this,” says Amanda Palumbo, a researcher for ChamberofCommerce.org, a resource site for small businesses and enterpreneurs. “This is something that’s pretty simple and doesn’t affect your credit score.
“Remember, credit-card companies want your money and don’t want to send you to collections,” she adds. “Most will work with you to find ways to make the payments easier.”