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The holiday season is upon us! If you’ve made your list and checked it twice, and are ready to start shopping online or in stores, you may be wondering how the short-term increased spending impacts your credit score.

The answer is: it depends.

First, a little refresher on how credit scores are calculated

Scores are calculated using a variety of credit data, which are grouped into five categories. While each credit scoring agency breaks down the percentage for each credit score category a little differently, on average, your score is made up of:

  • Payment history (which makes up 35% of your score)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • New credit (10%)
  • Credit mix (10%)

Holiday spending can increase the ‘amounts owed’ category of your credit score

If you are primarily shopping with a credit card—either online or in person—to buy holiday gifts, your credit card balance will increase compared to other months. If you’ve saved up throughout the year and can pay this off right away, your credit score won’t be negatively impacted. If you carry the debt forward, meaning the total balance on your credit card increases from month to month, your credit score will likely decrease, and by as much as 20 points, according to one report

Increasing debt also threatens your ability to make payments on time

The biggest factor in determining your credit score is your payment history. If you make your payments regularly and on time, this helps your credit score. If you miss a payment or frequently make payments late, your score is negatively impacted. If you increase your debt with holiday spending, it could make paying your bills and making credit card payments harder.

Here are a few tips to help you keep tabs on your credit this holiday season:

  • Review your credit report. Your credit report is a summary of all the credit (meaning credit cards and loans), as well as what services you are using (such as a utility bill) in your name. Aim to check yours at least three times a year. As a reminder, you get one free credit report from each of the three primary credit reporting agencies a year, so if you space them out every four months, you can make sure no one else is using your identity (and credit!). During the pandemic, you can get your credit report for free on a weekly basis.
  • Make your list and stick to it. Outlining a list of holiday gifts and other expenses you expect to have during the holiday season can help you plan accordingly. Alternatively, if you don’t have a list, your spending can quickly add up, leaving you struggling to pay the bills post-holidays.
  • Skip the in-store credit cards. It seems like nearly every major store offers shoppers its own in-store credit card. And when you get to the checkout with an armload of holiday gifts and the cashier tells you the amount you could be saving, it can be VERY tempting to say yes to opening another credit card. Take a moment to remind yourself of your budget, your spending limits and then politely decline to ensure you don’t add too many new lines of credit to the mix or overextend on your amounts owed, which could both lower your score.

Looking for more tips for managing your finances? Check out our budgetingsavingsfamily finances and money etiquette blogs.