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The Credit Card Mistake You Can't Afford to Make This Weekend
Cardholders are a loyal bunch, according to an analysis by TransUnion which found the average consumer plans to put nearly 80% of his or her holiday expenses on one piece of plastic. This despite the fact that spending ramps up in December and the average consumer carries five cards.
Putting holiday purchases on one card has some advantages. tI can prompt issuers to send "more attractive credit card offers" tailored to users' preferences, as TransUnion notes. For cardholders, the practice can help them avoid missing payments since there's only one bill to look out for. Still, cardholders should note this strategy can backfire, especially if they aren't aware of their credit limit.
Credit scoring models consider the amount of debt you're carrying on individual and multiple cards when computing your score. In fact, "amounts owed" accounts for 30% of the widely known FICO credit score. So it is generally recommended that you keep your debt-to-credit ratio — both on single and multiple cards — under 30%, and ideally at 10% or lower, in order to receive the best credit score. (You can see how your card balances are affecting your credit by viewing your free credit report card each month on Credit.com.) With that in mind, here are some steps you can take to protect your score over the holidays.
1. Pay Off Monthly Balances
The idea is to keep your total credit utilization below 30%, so it's best to pay your balance off in full each month, whether you're using one card or several. This may require some budgeting and discipline, so you'll also want to check your calendar. Issuers generally report balances to the three credit bureaus by your statement's billing date, which actually occurs before your monthly payment is due. You may want to call your issuer up to ask when they make their report or make multiple payments each month in order to lessen the odds of having a big balance wind up on your credit report.
2. Request a Higher Credit Limit
If you're limiting purchases to a single card and not sure you'll be able to pay off the balance by January, call your issuer to see if it will raise the card's credit limit. Issuers will typically do this for cardholders who have stellar payment histories and high usage levels. Just keep in mind the request may generate a hard inquiry on your credit report, which could ding your score (though likely not as much as bumping up against the credit limit would).
3. Set Up Automatic Payments
Whether you decide to use several cards or stick with just one, you can avoid missing a payment by enrolling in your issuer's automatic bill pay option. (Call your issuer to find out the best days to make payments.) Some issuers even offer alerts that let you know when you're nearing or have gone over your credit limit. Taking advantage of these and other notifications such as a missed payment alert can help keep your credit score intact — over the holidays and beyond.
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