Now that we’re settled in the New Year, you may have noticed that your credit score has taken a hit after some overly joyous holiday spending. You’re not the only one: A recent report from Marcus by Goldman Sachs says almost half of the U.S. (48 percent) carries a balance or goes into credit card debt over the holidays due to travel, entertaining, and gift costs. While this can make for an exciting holiday season, it usually leaves our wallets—and credit scores—hurting. While a credit score decline may be digestible for some, it can be especially scary if you plan to buy a house or rent an apartment sometime soon. Don’t panic: Get back on track by following this expert advice for some quick damage control:
Keep up good credit habits
If you already had decent credit, go back to your pre-holiday habits. If not, you can learn a thing or two from folks who maintain excellent credit scores. First, if you aren’t doing this already, check your credit score with a free service like Credit Karma, or pull your official report from one of the three bureaus at annualcreditreport.com. This way, you can see all of your credit details and spot issues that need fixing.
Try to keep your credit utilization below 30 percent, report any errors that you see so they can be removed, and make sure you always pay your bills on time. Beyond those basic recommendations, you may need to implement some special post-holiday strategy:
“If you’re unable to pay all balances in full, focus on paying off the card that has the highest interest rate,” says Priyanka Prakash, a lending and credit expert for Fundera. “Pay the minimum balances on all cards, and then use any extra money to pay down the card with the highest debt.”
Remember that as long as you submit the minimum payment on time, you don’t have to pay your balance in full to help out your credit score—just focus on lowering your credit utilization.
“If possible, try to pay your cards off more than once per month to boost your credit,” advises Prakash. “The balance that shows on your credit report depends on when the credit card company reports your balance to the credit bureau. This isn’t necessarily reflective of your latest balances, and paying twice or more per month can help keep your credit utilization low and your credit score high.”
Don’t Close Your Cards
Did you open store cards to take advantage of some juicy deals? It may be tempting to close those cards to avoid temptation, but don’t do it. Opening several store card accounts during the holiday season is a common mistake many consumers make, especially since many of them come with promotional interest offers. But paying off those balances and keeping the credit lines open will help your credit more in the long run.
“Opening multiple cards in a short timeframe makes your credit score take a dip,” says Adrian Nazari, the CEO and founder of Credit Sesame. “While the first instinct may be to close a new store credit card following the spending season, that’s not always the best idea for your credit score.”
Nazari says that if you’re carrying a balance on one or more of your other general-use cards, closing a store credit card will hurt your utilization ratio. Instead, resist temptation to cash in on the New Year sales and pay your bills on time and in full, if possible. Again, like Prakash says, focus on paying down the balances of the cards with the highest interest rates first.
Budget your money
“My suggestion is one that may not be very popular at all,” says Eric Sztanyo, a real estate agent with Keller Williams Realty in Cincinnati, Ohio. Yes, it’s the b-word: Budget. After you’ve made it rain from Black Friday to New Year’s, it’s probably time to curtail your spending. While you’re feeling the pain of your 2018 Christmas spending decisions, he says, you should channel that hurt into a 2019 budget—and plan how to absorb next year holiday costs, too.
Start by going through your bills to see where your money went over the past few months. Apps like Mint will keep track of your budget for you by automatically recording and categorizing each expense. This will allow you to figure out where your problem spending areas are. What do you spend too much on? What can you live without? Channel that money back into necessities, and use whatever you have left to dig yourself out from under your holiday spending. You can also estimate your 2019 holiday expenses using last year’s data and save up throughout the year.
Get rewarded for payments you’re already making
Before you make any monumental changes, see if you’re already doing something that might boost your credit:
“Some landlords regularly report rents to the credit bureau,” says Matthew Baltzell, a real estate analyst for Boardwalk Wealth in Denver, Colorado. “If this is the case, you should continue to make your payments. However, if your landlord doesn’t, you could ask them to start. This could help increase your score over time.”
Consider a personal loan
But what if you really overdid it? Getting a personal loan might not be such a bad idea if you’re already dealing with credit card debt. These loans give you cash to pay off your credit card balances in full, and you then pay back the loan monthly on a fixed repayment plan—usually with a lower interest rate than what you’re paying on your credit card. Taking one out can also help balance credit mix by adding installment credit to your profile if you don’t have student loans or a mortgage (other types of installment credit). Before you take this option, it may be a good idea to talk to a trusted financial professional.
Don’t stress about temporary credit slumps
If you’re not planning on buying a house or car in the first quarter of the new year, you shouldn’t worry too much about a temporary hit to your credit score. Ultimately, carrying a little credit card debt isn’t the end of the world and as long as you continue paying your cards down and on time, your score will inch up again.
“You shouldn’t make unnecessary contortions just for the sake of your credit score,” says James Garvey, CEO of Self Lender, a consumer-focused credit building start-up, in Austin, Texas. “Credit scores are more about playing the long game for long-term benefit, rather than making fast moves for quick wins.”
And now that you’ve made a plan for 2019, make sure you stay away from these credit mistakes.