We know how difficult the holidays can be, especially if you are working on your finances or trying to stick to a budget. There always seems to be too much Christmas list and not enough cash!
If your end goal is homeownership, however, it’s important to protect your credit score.
Here are our top 3 tips for how to protect your credit score during the holidays:
Tip #1: On-Time Payments
This is our most important tip! During the holiday season, it’s crucial that you continue to make all of your payments on time.
A single late payment will stay on your credit report for up to 7 years and will have an immediate negative impact on your score.
Even if you are only making the minimum payments, make sure that they are on time!
Tip #2: Beware of the store card
There’s nothing more tempting during the holidays than in-store credit cards! They typically offer an attractive discount on your purchase and the ability to put off paying for your purchase until the bill comes, which will typically be after the first of the year.
Opening new lines of credit, however, can have a negative impact on your credit score. If you are working on your credit, we recommend against opening any new credit lines unless you are specifically instructed to do so by your loan officer.
Tip #3: Keep an eye on those balances
Charge now, pay later. Seems like a great plan, right? But did you know that the closer your credit card balance gets to your credit limit, the lower your score will drop?
The credit scoring algorithm likes to see credit balances around 20% of the credit limit. That means if your credit limit is $1000, you would ideally never carry a balance higher than $200.
It happens to the best of us, we get into the holiday spirit and start swiping away. But in the case of that $1000 credit limit, if you charge the Twelve Days of Christmas and suddenly your balance is $900, you will see your score decrease significantly. This decrease will stick around until you are able to pay down that balance.
Pre-approved or in the middle of the home buying process?
Are you in the middle of the homebuying process? Are you pre-approved and currently house hunting?
We don’t want to be a Grinch, but we do want to give you the right advice to protect your ultimate goals.
Applying for a new line of credit or increasing your existing balances will increase your minimum monthly payment. This will affect your debt-to-income ratios and may reduce your pre-approval amount.
If you’re already in the process, your credit will be pulled a final time right before closing. If you’ve opened new accounts or increased your balances, the best-case scenario is that closing is delayed by a couple of days. Worst case scenario is that you no longer qualify for your loan. None of us want that to happen!
So, play it safe in order to make sure the Ghost of Christmas Future visits you with tales of homeownership.
The holidays are a time for happiness and joy, and we know firsthand the joy our clients get from celebrating in their own homes. We are here to help make your dreams of homeownership come true.
If you have any questions, give us a call at 937-548-8222.
Originally published Dec. 1, 2021, updated Nov. 20, 2023