How to Give Yourself the Gift of Good Credit This Holiday Season

Nothing can crush your holiday spirit quite like looking at your credit card debt in January. The holidays are an easy time to overspend, and the consequences can be longer-lasting than a low bank account balance. 

Imprudent spending can negatively affect your credit score, which will in turn affect your ability to take out loans in the future. This can make it more challenging to rent an apartment, purchase a house or car, or go to school. To avoid those dire fates, consider a few ways to give yourself the gift of good credit this holiday season.

Start Building Credit

If you’re someone who doesn’t have any credit to begin with, then you’ll have to start somewhere. Thankfully, this is actually relatively easy to do, provided you have some cash saved up. If you’re going to give yourself the gift of good credit, this prerequisite is a must. That’s because one of the best ways to build up good credit is to pay off your debts on time. So whenever you use credit to buy something, make sure you have funds on hand to pay your bill right away.

One of the best ways to break into the credit scene is to use a credit builder card. These cards are easy to qualify for because you secure them with your own funds, which reduces the risk to the card issuer. Make a funds transfer from your checking account, then use the card the same way you’d use a traditional credit card. Your balance — and more importantly, your on-time payments on that balance — will be reported to the credit bureaus. Using a credit builder card during the holidays lets you build credit on gift purchases you were going to make anyway.

Shop Wisely

Perhaps you’re someone who has some credit already. If so, it’s important to use it wisely. As you know, the pitfall of using a credit card is spending more than you can actually afford to pay off. Outstanding balances are subject to heavy interest charges, which is where credit card companies make most of their money. 

To avoid racking up debt, shop wisely this holiday season, and keep your eyes peeled for credit deals. Take advantage of low- or no-interest offers, as they’ll provide you a buffer just in case you do go over budget. While you shouldn’t apply for multiple credit cards at once — the “hard inquiries” will ding your score — you might add one. Doing so will increase your available credit limit, which in turn will reduce your credit utilization — provided you don’t use the new card to overspend.

Ideally, you only want to use about 30% of your credit limit at any given time. Your credit utilization is a significant factor that contributes to your overall credit score. The higher your ratio of used to unused credit, the worse your score will be. By using only up to 30% of your credit limit, you’ll keep creditors happy and boost your score in the long run. 

Redeem Points

If you’ve been building credit for a while, the holidays are a perfect time to cash in. That’s because one of the best perks of using a credit card over cash is accumulating rewards points. Certain cards offer points that can be redeemed in many different ways and for many different things. But redemption usually revolves around using your credit card company’s portal. Go to your card company’s website and look for a link to the shopping portal.

Depending on the kind of card you’re using, you may be able to redeem points for more value on certain purchases. For example, some credit cards are focused more on travel. So if you’re looking to fly yourself, friends, or family to Barcelona, look for a flight in the portal of your travel card. 

On the other hand, points on a cashback rewards card will go further when purchasing more traditional gifts. By using points instead of credit to make purchases, you’ll keep your credit usage lower and grow a healthy credit score.

Be Honest With Yourself

Your friend has been there for you all year and really came in clutch when you needed them most. But please, whatever you do, don’t buy them something extravagant that they simply don’t need. Sure, it would be cool to get them a genuine Rolex, but the guy selling it on Craigslist seems sketchy at best. There’s really no good reason to give him your credit card information.

In all seriousness, the holidays are a very vulnerable time for many people. It makes sense that you want to show the people you care about your affection by getting them something nice. But there are companies out there that will take advantage of peoples’ emotional vulnerability with lots of tantalizing deals. 

Everyone’s financial situation is different, and it’s important to be honest with yourself about your own. If you can afford expensive gifts, great, but be intentional when spending. The people who truly care about you will understand.

The Gift That Keeps Giving

The more intentional you are with your purchases this holiday season, the more likely you’ll be able to build up good credit. Make sure you maintain a healthy credit utilization ratio and don’t overspend too much. It’s possible to be emotionally manipulated in the heat of the spending season, so resist as best you can. Your friends will understand, and your credit score will be higher when you come out on the other end. And that’s a gift you’ll treasure.