The holidays are upon us and shoppers are heading out in full force to scoop up deals on everything from toys to clothes to electronics. ‘Tis the season for spending big, and for some, that means using plastic to pay for all the items on their shopping list. There are definitely some advantages to using credit for holiday gift-giving expenses, but it’s easy to get in trouble if you’re not careful. Whether you’re out fighting the crowds or shopping from the comfort of home, you don’t want to make any of these seven credit card mistakes.
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Opening Retail Cards Just for the Discount
Retail credit cards pack lots of appeal thanks to the discounts they offer, especially around the holidays, but you shouldn’t load up on store cards just yet. Any time you apply for a credit card, it shows up on your credit report, and the more inquiries you have, the more it drives your credit score down. If you’re going from store to store opening accounts just to save a few bucks on what you’re buying, your score is going to pay the price.
Overspending to Chase Rewards
Rewards credit cards can be a great tool for holiday shopping if you know how to leverage them. For example, if your card pays you 5 percent cash back for shopping at a specific retailer, that’s like getting extra savings on top of the sale prices. The problem that shoppers tend to run into is spending more than they can really afford to on credit just to rack up more rewards. Unless you have a solid plan for paying off what you’re charging, there’s a good chance that what you’ll spend on the interest will outweigh the rewards you’ve earned.
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Shopping Without a Budget
Going into a store without a list and a set amount of what you want to spend is a recipe for disaster, and it’s especially dangerous if you’re paying with credit. Study after study has shown that consumers tend to spend more when they’re using credit or debit cards versus cash, so if you don’t have a budget in mind, you’re really just tempting fate. You may be able to grab some great deals, but once your next statement comes in, you’re going to have one heck of a debt hangover.
Running Cards up to the Limit
While your payment history is the most important factor that affects your credit score, the amount of debt you owe isn’t far behind. If you’re carrying high balances across multiple cards, it can have a negative impact on your credit utilization ratio. When lenders see that you’re close to or at your total credit limit, it sends up a big red flag that could lead to future applications for loans being denied. Not only that, your current creditors may decide to raise your interest rates based on your perceived level of risk.
Using Credit to Cash in on Zero Interest Deals
Promotional offers are just about everywhere during the holidays, luring customers in with the promise of zero interest on everything they buy for six, 12 or even 18 months. What stores don’t tell you, however, is that if you’re not toeing the line you could end up having to pay all the interest anyway.
A late payment here, a missed payment there, and your creditor may decide that you’ve defaulted on the terms of the promotional agreement. If that happens, the entire amount you charged would be subject to the regular interest rate, sending your balance skyrocketing.
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Forgetting to Track What You Charge
When you’re going to holiday parties, spending time with family and crossing off all the things on your to-do list, it’s easy to lose track of where your money’s going. Once January rolls around and your credit card statement arrives, you might be in for a rude awakening if you underestimate how much you’ve charged. Organizing all your receipts and keeping a running tally of what you’ve spent on each card you’re using eliminates the possibility of being caught off-guard by what you owe.
Not Protecting Your Information
Identity thieves can strike at any time, but the holidays see a major spike in the amount of fraudulent activity that goes on involving stolen credit card information. Some of the mistakes you want to avoid include giving your card number out over the phone, shopping on websites that you’re not familiar with, clicking links in emails from senders you don’t recognize, leaving your wallet unattended when you’re in the stores and falling for deals that seem too good to be true.
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Nothing can spoil your holiday cheer faster than finding out a crook has been doing a little shopping of their own using your credit card, so it pays to keep your information as secure as possible at all times.
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