The holiday season is one of the busiest times of the year. Between travel plans, events, shopping, and decorating, you’ll feel like you’re being pulled in a million different directions. However, there’s one task you shouldn’t overlook – checking your credit health.
While the holiday season is busy, it’s also financially demanding. Many expenses pop up around the end of the year, and your credit score can play a major role. In this article, we’ll shed light on why reviewing your credit before the holidays is important and reveal steps to start the new year off on the right financial footing.
Why Perform a Credit Health Check?
Your credit score plays a significant role in your everyday life. Not only does it help determine whether you’ll become approved for the loans you need, but it also impacts how much you’ll pay for those loans. Those details could affect your finances in the short and long term, depending on the loan length.
It’s no different during the holiday season. An effective credit check can help you:
- Determine where you currently stand financially.
- Understand whether it’s wise to borrow money over the holidays.
- Formulate a financial plan to start the coming year on the right track.
Step #1: How to Check Your Credit
If you plan to borrow money or use credit cards during the holiday season, you must know where you stand credit-wise. Two metrics are available to help consumers evaluate their credit health – your credit score and credit report.
- Credit Score:Your credit score provides a quick snapshot of your credit health. Your ability to borrow and repay money is represented by a three-digit number. Lenders use this figure to determine the risk associated with lending money to you. Make it a habit to check your credit score periodically. Contrary to popular myth, checking your score will not actually lower it. There are many financial services and credit monitoring apps that will allow you to check your credit score for free, such as Experian, a major US credit bureau.
- Credit Report:While your credit score provides a quick snapshot of your credit history, your credit report is much more detailed. You can review all credit accounts open in your name, payment history, and more – providing lenders with a comprehensive review of your finances. Checking your credit score is quick and easy. However, you should review your full credit report a few times a year to ensure no errors or potential fraud are dragging down your score. You can obtain a free copy of your credit report at www.AnnualCreditReport.com.
Step #2: Monitor Your Current Finances
Once you know your credit score and review your history for possible errors or fraud, it’s time to gauge where you currently stand. Yes, the holiday season can be expensive, but you don’t want to act impulsively and put yourself into a financial pickle come January.
Begin by reviewing all your active credit cards.
- Write down the outstanding balance of each card.
- Determine the credit limit for each (maximum amount you can spend per card).
- Identify the interest rate on each credit card.
From here, you can determine how much you can spend on your cards over the holidays. As a rule of thumb, you want to limit your credit card spending to no more than 30% of your available limit; otherwise, your credit score will take a hit.
For example, if your credit card limit is $10,000 and your outstanding balance is $2,000, your current credit utilization ratio will be 20%.
If your credit card balances are on the higher end, taking steps now could drastically improve how you start off the new year.
Step #3: Preparing for the Coming Year
One of people’s greatest fears is opening their credit card statements after the holidays. Instead of letting that dread build-up, being proactive is the best move.
In Step #2, you listed all your current credit card balances, limits, and rates. Use that information to consolidate debt before the holidays.
While many people think debt consolidation is challenging, the process is very easy, and you’ll save money immediately.
- How Debt Consolidation Works
Imagine you have two credit cards with the following balances and interest rates:
| Interest Rate | Outstanding Balance | |
| Credit Card A | 19% APR | $2,500 |
| Credit Card B | 22% APR | $3,000 |
Through debt consolidation, you can transfer the total balance ($5,500) to a personal loan with a much lower interest rate, for example, 9% APR. This process unleashes various financial perks:
- You’ll instantly save money by paying much less interest.
- With set monthly payments, you’ll typically pay off the debt faster and pay less interest versus making minimum payments on a credit card.
- Your credit utilization ratio will improve immediately, boosting your credit score.
- Managing one due date and monthly payment is much easier than managing several.
Debt consolidation is one of the best methods of eliminating high-interest debt, reorganizing your finances, and putting you back in control. Being proactive and taking this step before the holiday shopping season gets rolling is an excellent strategy to move into the new year on the right financial footing.
We’re Here to Help!
With the holidays swiftly descending upon us, there’s no better time than the present to have a quick check-in with your credit health. Give yourself the gift of better credit for the holidays so you can start the new year off on the right financial footing.
If you want to learn more about holiday loans or how debt consolidation can provide an affordable alternative to credit cards, we’re ready to help. Please stop by any of our convenient branch locations or call 800-782-4899 to speak with a team member today.
Happy Holidays!
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Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.