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Be Careful with Credit During the Holiday Season

Only 43% of consumers will cut back on holiday spending this year, compared to 55% in 2008, according to a Consumer Federation of America survey. While increased consumer optimism spells good news for retailers, for Americans planning to “stretch” the budget, the New Year could bring falling credit scores, and with it, serious consequences.

Here are some fail-safe tips from FICO Credit Guru Shon Dellinger to help enthusiastic shoppers stay financially sound:

1. Be Smart with Credit. Using a credit card is ok – experts agree having 3-5 credit cards helps your credit, if used responsibly. But carrying a balance on your credit card leaves you (1) stuck paying interest that could cost you, in some cases, double or triple the cost of those gifts in the long run and (2) with a much lower credit score, which could jack up interest rates on your credit cards and jeopardize your chance of getting lines of credit elsewhere (buying a house, a car, etc.). Services like FICO Score Watch combat this by providing emails or texts alerting you to any changes in your FICO score (either positive or negative), and notifying you when you’ve qualified for a better interest rate. A credit score increase of 30 points will save the average consumer $105 per year.

For more information on FICO Score Watch, go to: www.myfico.com/Products/ScoreWatch/Description.aspx.

2. Resist “Short Savings.” The salesperson at your favorite department store offers you an instant 20% savings just for opening up a credit card in their name. While that $20 seems tempting at the time, it can quickly put you in debt if you’re not careful. The temptation of the deal is also one reason why the average consumer has a total of 13 credit cards. Opening new lines of credit can also hurt your credit score, so make sure the card meets your overall needs and not just your desire for quick savings.

3. Don’t Wait Till April! Many holiday shoppers use their Tax refund to pay off credit card balances left over from the holidays, which can be incredibly expensive, not to mention detrimental to your credit standing. A credit card balance of $500 dollars from January until April will cost you $237 dollars based on today’s average credit card interest rate.

4. Get Info on Your Credit. Go to the myFICO Forums, where you can connect with thousands of other people all in your same boat. Don’t wait til after the holidays, when the damage is done. FICO is offering 30% off all products on its web site if you enter the discount code MYFICO HOLIDAY.