6 tips for healthy credit during the holidays
The holidays are usually a time to spend. If you’re in the market to buy a home in the near term, you may want to consider how holiday spending could impact approval of and pricing on a mortgage application.
1) Check your credit report: If you plan to apply for a mortgage, check your credit report first. Finding and correcting errors on a credit report before applying for a mortgage may prevent complications or delays in the process.
2) Try not to increase charge card balances: Remember that revolving balances may lower your credit score. Also, a jump in outstanding debt may increase your debt-to-income ratio, which can affect the type and amount of loan for which you may qualify.
3) Think twice about opening new credit accounts: It is tempting to accept those promotions that offer an extra 15% off purchases with a store charge card. Just be aware; each time you apply for a charge card or other type of credit, your credit report is pulled. These inquiries on your credit report may negatively affect your credit score.
4) The age of your accounts matters: Remember older credit card accounts may help your score, while newer accounts may be a drag on your score. Having a credit account for a long time may indicate that you manage credit responsibly over time. New accounts can lower the overall average age of your accounts.
5) Don’t rush to close accounts: You may think an end-of-year clean-up of your credit is a good idea. Not necessarily. Since older credit accounts may help your score, closing old accounts — even if they are not used — can lower the overall average age of your accounts and hurt your credit score. Also, your score may be based in part on your credit usage relative to your available credit. Closing accounts reduces your available credit.
6) Think twice about big-ticket items: I know a new car for the holidays sounds attractive, especially with low financing rates. Just remember the monthly payment on a vehicle loan may reduce the amount of money you have available to make mortgage payments. This may affect the type and amount of loan for which you may qualify.
As with eating during the holidays, using credit in moderation may help you stay in shape for the New Year. Enjoy the holidays, and best wishes for the coming year.
* Consult a consumer credit counseling service or professional for guidance on how best to improve your overall credit score. Fees may apply.