What Holiday Shopping Can Do to Your Credit Scores!

“Do you want to put that on your charge card for a special discount? If you open a charge card with us, you will save 30% off of today’s purchase!” is what you will hear at every department store you visit over the holidays.  Sounds great, right? Not when it comes to credit scores!

credit scores holiday
Watch out for opening and charging on a new card during the holidays!

Actually, opening a new store account and then charging your purchase on the card can dramatically lower your credit scores. You would not believe how much a new $300 card with just a $270 charge can do to your credit scores!

Here are the top ways a holiday trip to the store can affect your credit scores

Remember that not only does shopping affect your credit scores, it also hurts qualifying for a mortgage, car, insurance, or other rates negatively. Here are the ways a new account hurts credit scores.

  1. New credit inquiries can lower a score
  2. Newly opened accounts affect the average age of your credit history which can lower your scores
  3. Department store cards usually have a lower credit limit and if you are very giving this holiday, your higher balance compared to the limit will lower credit scores
  4. Lump all of these together and you have a riskier profile as credit bureaus see it
  5. Higher risk = Lower credit scores = Higher rates on mortgages, auto or student loans, or insurance rates

If a homebuyer opens two cards and charges near the limits, it could potentially take a score from 740 to 680 which often makes a big difference in loan approvals and rates.

If you are in the process of purchasing a home or will be in the next few months, talk to your mortgage professional before opening a new credit card account.  An inquiry + new account opened + a purchase = Lower scores! Even worse, opening cards or spending during the mortgage process could turn an approval into a denial just before closing!

Additional Resources on Credit Scoring:

Written By: Russell Smith