How to Protect Your Credit Score During the Holidays

As the cooler weather sets in, the holiday season is starting to appear on the horizon. Although the festive season is filled with lots of fun, it can also feel like the most expensive season of the year.

If you are worried about higher holiday costs cramping your budget, then your credit score might also be in danger. Let’s explore how you can prepare your credit score for the holiday season ahead.

Why Are the Holidays a Risky Time for Credit Scores?

When you think of the holiday season, your mind likely jumps to colorful decorations and delicious meals. Many take advantage of the holidays as a time to catch up with family and celebrate the season. But the fun activities can often translate into a risky time for your credit score.

Here’s a closer look at what makes the holidays a precarious season for your finances.

Increased Expenses

The holiday season comes with extra expenses. A few that you might easily recognize are the costs of buying gifts and hosting holiday dinners. But there are other hidden costs, like the expense of traveling to a celebration destination or paying expedited shipping to make sure your gifts arrive on time.

According to a LendingTree survey, over 1 in 3 shoppers took on holiday debt in 2021. Unfortunately, that extra spending might lead some consumers to spend months paying off the expenses of the holiday season.

Social Pressure to Overspend

For many, the holidays are a special time of the year. But there’s an underlying pressure that comes with the holiday season. According to a 2018 Bankrate survey, 2 in 5 shoppers feel pressured to overspend on holiday gifts.

Personally, I’ve felt the pressure to overspend on holiday gifts. It’s not a fun feeling. But many, including myself, often succumb to spending more than they intended to make sure their loved ones have a thoughtful holiday gift.

But the pressure to spend more than you might want to doesn’t stop at the presents under the tree. Instead, the cost of the holiday season continues to press from all angles. For example, you might feel the pressure to pay for a nice dinner out with your family, even if that’s not really in your budget. Even if you are hosting a party at home, soaring food costs might push you to spend more than you expected.

Seemingly Good Deals Everywhere

Although we seem to be bombarded by sales ads on a daily basis, sales tend to pick up around the holiday season. And every year, the sales and spending expectations seem to grow. For example, Black Friday sales often start on Thursday and continue all the way until Cyber Monday.

As the ads roll in, many of us want to head out to the stores to take advantage. But before heading to the stores, it’s important to decide whether or not you really need the item. If you purchase an item you don’t actually need, then you are spending more than you need to even if the item is on sale.

The temptation to overspend during a sale can be very strong. If you are trying to protect your finances during the holidays, don’t let sales that pop up on your radar derail your plans. Instead, only make sale purchases on items you need to purchase anyways.

How to Prepare Your Finances for the Holiday Season

As the holiday season approaches, a little bit of financial preparation can go a long way. Take a look at this list of financial to-dos and check it twice before the most expensive time of the year arrives.

Not only is your wallet in danger, but also your credit score. Let’s explore how you can protect both during this holiday season.

Consider Your Credit Situation

If you are on a mission to protect your credit score, the first order of business is to determine where your credit score actually stands. You can check your credit score for free through a variety of banks and online tools.

When you have a visual on your FICO score, see how it stacks up against the scale:

•     Excellent: Excellent FICO scores are in the range of 800 to 850.
•     Very good: Very good FICO scores are in the range of 740 to 799.
•     Good: Good FICO scores are in the range of 670 to 739.
•     Fair: Fair FICO scores are in the range of 580 to 669.
•     Poor: Poor FICO scores are in the range of 300 to 579.

Typically, those with good credit scores will find the best interest rates and loan terms when financing a major purchase. In fact, those with a good credit score might save thousands of dollars over the lifetime of their loans. With this in mind, it’s clear that a good credit score is worth pursuing and maintaining.

Build a Holiday Fund

The holidays have a tendency to sneak up on our budget. It might feel like you don’t have control over the upcoming holiday season, but it’s possible to get ahead of the expenses by building out a holiday fund.

The sooner you start saving for the holidays, the easier will be to cover the costs of the season. Start by setting a savings goal for your holiday expenses. As you decide on a number, think of the expenses you encountered last year. A few common expenses include gifts, holiday dinners, and travel.

Once you have a savings goal in mind, set up an automatic deposit into an earmarked savings account. Map out how much you’ll need to put into savings each week to hit your goal. For example, if you have 5 weeks until the holidays and want to have $100 available for holiday costs, you’d need to tuck away $20 each week.

If you aren’t able to tuck away funds on your current income, then consider picking up a temporary side hustle. Even committing a few hours a week to a side hustle could give you the cash you need to cover holiday costs.

When you have a robust holiday fund at the ready, you won’t have to rely on debt to get through the season. Instead, you can take full advantage of the holiday season knowing that you have the funds to cover all of the costs.

Relying on these savings will protect your credit score. But the ability to skip taking on high-interest debt might also take some of the stress out of the season. Instead of worrying about how you plan to pay for all of the festivities, you can sit back and enjoy them.

Create a Budget

Whether or not you’ve built a holiday fund, it’s important to set a budget for your holiday spending. A budget will help you keep your finances on track during the season.

Start by creating a list of your expected holiday expense categories, which might include gifts and travel. From there, determine a spending limit for each category. Everyone’s holiday budget will look a little bit different. But ultimately, the goal is to have boundaries on what you are able and willing to spend throughout the season.

It’s helpful to think about your budget before the holiday expenses start piling up. If you have time to think about your other financial goals, you have the chance to set a budget that works for you instead of reacting to holiday costs.

One of your financial goals might be to protect your credit score. In that case, your holiday budget might only be based on funds you have available to spend instead of borrowing money to cover the festivities.

As you build out your budget, be prepared to make choices about your holidays. For many, building a realistic holiday budget means that you cannot do every single activity and go overboard on gifts for everyone. It’s okay to focus your spending on what matters to you most during the holiday season. For example, you might skip lavish gifts in favor of hosting an extravagant holiday meal.

Get Creative With Gifts

Although there are many costs tied to the holidays, giving gifts can be one of the more expensive items in your budget. The pressure to go big on gifts to friends, family, and acquaintances is strong in our culture. But the reality is that you don’t have to spend a ton of money to give a gift that shows you care.

Here are a few ways to save money on your gift purchases this year:

•     Make a list: Put together a list of everyone you want to buy gifts for this year. As you look through the list, consider how much you realistically have available to spend per person.
•     Shop early: If possible, start shopping for your gifts ahead of the holiday season. When you make your list early enough, you can snag the perfect gift at a reasonable price at some point throughout the year.
•     Look at the sales: Black Friday and Cyber Monday are full of sales. Keep an eye out for items on your list at a deep discount during these sales.
•     Skip the store: Even if you are shopping the sales, buying all of your holiday gifts can add up quickly. For those with a creative streak, it’s possible to save big by making your own holiday gifts. The gift might be as simple as making a batch of cookies for a friend or as lavish as making jewelry.
  

  

A little bit of creativity can go a long way to stretching out your budget. Although it’s tempting to spend a lot on gifts, that’s not necessary to show someone you care. For anyone trying to protect their financial goals, it’s important to stay strong against the temptation to overspend during this season.

Assess Your Emergency Fund

Regardless of the season, an emergency fund can serve to protect your credit score. If an unexpected expense pops up, you can tap into these cash reserves to handle the issue without taking on debt or missing a payment on your existing obligations.

Most experts recommend building an emergency fund to cover between three to six months worth of expenses. For example, if you spend $3,000 on a monthly basis, then an ideal emergency fund would contain between $9,000 to $18,000.

Unfortunately, life often throws unexpected expenses your way at the most inopportune moments. But if you have a sufficient emergency fund, an unexpected car repair or minor medical emergency won’t throw your entire financial plan out of whack.

Before heading into the holidays, take stock of your emergency fund. If possible, it’s helpful to top up your emergency fund before moving into the holidays.

How to Improve Your Credit Score

It’s one thing to protect your existing credit score during the holiday season. But it’s another to improve your credit score.

Here are some steps you can take to improve your credit score.

Make On-time Payments

Making on-time payments is one of the most important things you can do to protect your credit score. That’s because your payment history accounts for 35% of your FICO score.

When you make on-time payments to your credit accounts, that builds a positive payment history on your credit report. In turn, this can push your credit score higher.

One strategy to stick to an on-time payment routine is to harness the power of technology through an automatic payment feature. With a little bit of automation, you’ll never forget a payment again.

If you are struggling to make your payments on time due to a cash flow problem, try to be proactive about the issue. Instead of letting a payment deadline pass you by, communicate the situation to your lender. In some cases, lenders are able to offer a temporary payment extension, which can help protect your credit score.

Use Alternative Credit Payments

It’s possible to build credit without a traditional credit account. After all, you likely are still paying other bills on a regular basis.

A few of the non-traditional credit payments that might help you build credit include utilities, streaming services, rent, and cellphone bills. It’s possible to build credit with these payments by enlisting the help of a specialized service.

One option is Experian Boost, which is a free service that looks at your bank records to determine whether or not you are paying select bills on time. Importantly, the bills must be in your name, which means you won’t get credit if you split your bills will a roommate and send the funds directly to them.

Credit Repair

If you have incorrect information on your credit report, that might drag your credit score down. Although the mistakes can appear innocent enough, it’s important to remove inaccurate information as soon as possible. The process of removing this incorrect information is called credit repair.

It’s possible to remove this information on your own by contacting the credit bureaus. You can file a dispute with the details of the incorrect information. With the right information, the credit bureau will remove the inaccuracies within 30 days.

If you find extensive mistakes on your credit report, then you might decide to enlist the help of a reputable credit repair service. These experienced professionals can help walk you through the logistics of removing incorrect information from your credit report.

The Bottom Line

The holiday season can easily get expensive. But taking steps ahead of the seasons can help you protect your credit score while enjoying the festivities. If possible, take action to insulate your credit score from the dangers of overspending during the holidays.