How to Protect Your Credit During the Holiday Spending SeasonPublished on December 4, 2020 by Daniel Azzoli
‘Tis the season when you can expect to juggle your time agonizing over what to get people and navigating sales to nab something before the big day.
In all the hustle and bustle, your credit may take a back seat to your holiday spending. Before you make a mistake you’ll regret, check in with CreditFresh’s guide to the season. With online security tips and money management advice, it has everything you need to know about keeping your personal data safe.
Create a Holiday Spending Budget
Between stealing extra shortbreads from your pantry and toasting with one-too-many spiked eggnogs, celebrating in excess during the holidays may seem like it’s all a part of the tradition.
But overindulging — in all its forms — has its consequences. Just as you might wake up with a groggy head following a night of “fun”, you may end up nursing another kind of headache if you overspend at the till.
If you aren’t careful, overspending during the holidays could mean you take on holiday debt.
In 2019, those who went into holiday debt racked up an average of $1,325. This is over $100 more than the holiday debt acquired in 2018, according to MagnifyMoney’s annual holiday spending survey.
A large chunk of respondents (78 percent) said they wouldn’t be able to pay off their holiday debt by January. Sounds stressful! Generally, the longer you take paying off holiday debt, the more you may end up paying in interest and financing charges.
To keep holiday debt from dampening your good cheer, spend some time on a holiday budget. This spending plan helps you determine how much cash you have on hand to use on gifts, travel, and other holiday necessities.
Ultimately, finding the right holiday budget for your finances is one way to help keep negative entries off your credit history. But don’t worry, we share our tips on rebuilding your credit history in case you need extra help.
Make a “Naughty and Nice” List of Expenses
If your holiday budget ends up being tighter than you were expecting, go through your spending habits and divide them into two budgeting categories: the “naughty” and the “nice”.
Those that make it onto the “nice” list are essential purchases or bills and may include housing costs, groceries, line of credit payments, and savings. These needs are central to your survival and financial security, so they must stay in your holiday budget.
The “naughty” list, on the other hand, often ends up being unnecessary purchases like takeout. They may be fun, but all they do is make you spend the money that you could use elsewhere. By limiting these “naughty” expenses, you may free up more cash for your holiday budget.
Understand How a Personal Line of Credit Fits into Your Plans
If you run a tight ship, there may not be a lot of wiggle room in your holiday budget. If you aren’t happy with your holiday spending limit this year, applying for a personal line of credit is as tempting as going back for seconds during the family feast.
Resist this temptation! A personal line of credit is designed as a backup when your savings fall short covering an unexpected emergency expense.
To be fair, showing up empty-handed to the holiday celebrations may feel like an emergency. But it isn’t.
The holidays arrive at roughly the same time each year, making it one of the most reliable expenses in your annual budget. You should be aiming to set aside some cash throughout the year for the holiday spending season.
If that didn’t happen this year — and your holiday budget falls short of what you need — speak with your family about what you can and can’t afford. There’s a way to talk about cash without dampening people’s spirits.
As for a line of credit, reserve it for unexpected emergency expenses like:
- Medical expenses and hospital parking if you burn yourself while cooking the big feast.
- Calling out for a technician during holiday hours if your furnace’s pilot light goes out during a deep freeze.
- The cost of a tow truck and auto repairs should your car break down unexpectedly on your way to the grocery store.
Make a List, Check it Twice
A list and a holiday budget go together like the milk and cookies millions of children leave out for old Saint Nick. This organizational tag team can help you stay on track all season long.
If a holiday budget gives you an idea of how much you can afford to spend on gifts and goodies, a list is your plan of attack that helps you buy items that match this spending limit.
When you go to write your list, jot down how much each item costs and which store offers it at the cheapest price. An organized list like this helps you in two ways:
- You know what stores to visit and which ones to ignore altogether. This helps prevent you from dropping by a store that holds nothing but temptations to overspend.
- Once you make it to the right store, you’re also more likely to focus on what you need and ignore costly items you don’t.
Knowing what you need before you start your shopping is a great way of blocking out these distractions. If you keep to what you set out to buy, and just that, you may successfully avoid what these extra temptations may do to your finances.
But let’s be honest, avoiding temptations isn’t always easy during the holidays.
From storewide flash sales to reduced add-on items, retailers pull out all the stops to make sure you spend the big bucks.
Buying an extra giftset marked 60 percent off may seem like a steal at first. But later on, you may regret going off-script.
Remember, an item discounted by 60 percent still means you’re paying 40 percent for something you didn’t account for in your holiday budget.
Only Use a Credit Card if You Can Treat it Like Cash
On the surface, a line of credit and credit card may seem like similar borrowing options. Both are open-ended loans that allow you to draw cash on a revolving basis as long as you pay off your balance.
Both may have an impact on your credit history depending on your financial institution. But don’t worry, there may be other ways to build credit history. We show it’s possible to build your credit history without a credit card or a line of credit.
But they aren’t identical products.
Comparing a line of credit vs a credit card is a lot like comparing Rudolph the red-nosed reindeer to his friend, Prancer. While they’re both reindeers, they perform very different roles in Santa’s sleigh-pulling crew.
The same goes for how a line of credit vs credit card functions in your financial roster. While a personal line of credit can be a safety net in unexpected emergencies, a credit card may have a role in your holiday spending plan.
When your plans call for snagging online deals that fit your holiday budget, a credit card may be the only answer on one condition: if you plan on using your card for these reasons, you must be able to afford each purchase and pay it off before the due date.
This rule is easy to live by once you stop thinking of your card as an endless supply of money and start treating the plastic in your wallet as if it’s the cash in your billfold. Only charge items onto this card if you have that money in your checking or holiday savings accounts.
Paying your bills on time can be easier if you have an online account or an app on your phone. You can log on to pay them as soon as you make them.
Getting into this habit may help save on finance charges and interest. It may even help you limit your balance, which may have an impact on your credit utilization rate. These are just some of the many habits that may help protect your credit score and history.
Meanwhile, you’ll cash in on all the benefits of your credit card, including:
- Rewards points
- Purchase protection
- Fraud liability
- Travel perks
These extras can take some of the sting out of holiday shopping, but they can easily spur you on to overspending during the holidays.
If you think you won’t be able to keep to your holiday budget, sideline your credit cards. The only way these benefits make sense is if you can use your cards responsibly. That includes charging only what you can afford and paying your bills on time.
Monitor Your Accounts for Credit Card Fraud
The holidays are a busy time for your finances. No matter how you celebrate, you’ll likely shop more often than you do at any other time of the year.
Fraudsters aim to take advantage of this hustle and bustle in hopes you won’t notice they’ve hacked your accounts until it’s too late.
Monitoring your accounts can help you catch the signs before a thief can take your finances for a sleigh ride.
Go through your financial account statements line by line, keeping your eyes peeled for any charges that don’t belong. Better yet, go online to monitor your accounts as you make purchases throughout the season.
You don’t have to check in obsessively multiple times a day but logging in once a week could help you catch fraudulent activity that happens between billing statements.
When you do check in, make sure you look at big and small items with equal scrutiny. Fraudsters know a single purchase that maxes out your limit will likely draw flags from your financial institution, so they may start with smaller purchases.
These small charges are harder to catch when you’re using your account often during the season. If you don’t pay attention, all the legitimate purchases you make act as the perfect camouflage for these small items — so you better watch out!
Set up Automatic Transaction Alerts
We’re all busy people, and that’s during a normal month. Sprinkle in shopping trips and other holiday responsibilities and the festivities put your calendar into hyperdrive.
With very little spare time on your hands, you may struggle to monitor your accounts as often as you would like. But now is not the time to panic. Automatic transaction alerts have your back.
These automated alerts help defend against fraud by sending you a notification every time you make a purchase. With a quick check of your phone, you can see if it’s a purchase you’ve authorized or a transaction you didn’t make.
If your alert shows you a purchase you didn’t make, you can get in touch with the account provider right away and freeze the account without delay.
Take Advantage of Your Free Credit Check
Another great way to keep tabs on your finances is through your credit report. This file shows you a detailed look at the accounts that get reported to one of the major credit agencies – Equifax, Experian, and TransUnion.
If a financial institution or a utility provider reports your account to these agencies, you may see the account’s age and payment history in your file.
There are some exceptions to what gets shared, including if your credit card application is denied. We show you what to do if your credit card application was rejected, but don’t worry — this rejection generally won’t show on your file.
Sometimes, your file will show inaccuracies that are honest mistakes in updating your file. But other times, these errors suggest you’re a victim of identity theft.
Identity theft may happen if your personal information is compromised. Thieves can use things like your contact info, financial account numbers, and Social Security Number (SSN) to open a loan or a line of credit account under your name.
But how do they get their mitts on this information? Your data may be exposed anytime you:
- Complete a sale from an unsecured website
- Use a tampered ATM or store terminal
- Fall for a phishing scam to share financial data in your email
- Fill out faulty forms online with personal information
How Often Should You Check Your Credit Report?
Each year, you get one free check from each of the three major credit reporting agencies.
This gives you three opportunities throughout the year to check your credit report. If you time it right, you can use one of these checks around the holiday spending season.
Be a Scrooge with Your Personal Data
Once you share your information with retailers, you have to trust they’ll protect it to the best of their abilities. Many retailers value your data and protect it with comprehensive security policies. But sometimes, these plans may not stand up to deliberate attacks from cybercriminals.
While you may not have any control over how these retailers are targeted, you can limit how often you share your data overall and reduce your potential exposure. You may do this by sticking with trusted retailers that prove they have your online security in mind.
Here’s a quick list of online security tips that help keep you safe:
- Use an antivirus program to automatically scan for malware, phishing scams, and other threats.
- Double-check URLs before you click a link to make sure it’s sending you where you want to go.
- Look for a locked padlock next to the URL — this suggests the site has the appropriate Secure Socket Layer certificates.
- Only shop from a retailer with a privacy and/or security policy that explains how they plan to collect, use, store, and dispose of your data.
When it’s your security on the line, there’s no such thing as being too cautious.
Wrap up Your Credit This Holiday
With the holiday spending season underway, your finances’ busiest season of the year has arrived. Between dinner duties and presents, your holiday budget may be stretched thin.
Are your finances ready?
If you’re worried that they might snap under the pressure, remember the tips you learned here today. When you follow this advice, you may be in a better position to control how your credit fares this holiday.