NEW YORK (MainStreet) — Holiday shopping can wreak havoc on the credit scores of consumers, even the highly disciplined ones who budget for their purchases.
During the next month, it is easy for consumers to go over their limit, spend over their credit line or miss one payment, which can all lower your credit score and impact it severely.
One mistake shoppers make is giving into the retailer’s ploy of getting a consumer to open a new credit card so they can save 10% on their purchases that day. Instead of reaping the rewards, future lenders see another inquiry on your credit report, said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling, the Washington, D.C.-based non-profit.
Another big error is using a store’s “buy now, pay later plan,” which means the consumer is opening a new account that appears on their credit report. Since that line of credit is equal to the amount of the purchase they are making, the shopper is automatically maxing out their credit on that account, she said. That action negatively impacts the scoring model’s credit utilization ratio.
“Short-term thinking can lead to long-term problems,” Cunningham said. “Creating holiday debt that cannot be responsibly managed can result in late payments that will remain on a person’s credit report for seven years, potentially lowering the credit score and limiting access to future credit.”
The impact of paying one of your bills late is severe, said Kevin Gallegos, vice president of the Phoenix operations for Freedom Financial Network, a company which helps consumers resolve debt issues.