Whether you’re stuffing yourself with delicious turkey, putting up decorations, or just enjoying a well-deserved break, you’re probably not thinking about your credit score much during the holidays. But even though it may not be fun, monitoring your credit score this time of year can help bring you closer to your financial New Year’s resolutions or goals. Here are a few ways to give your credit score a much-needed boost during this holiday season.
Plan to make more purchases with cash
It’s a myth that most people do their holiday shopping with credit cards. In 2016, Experian’s Holiday Spending Survey found that 55 percent of respondents selected cash as their planned method of payment for holiday gifts. Spending with cash instead of credit cards is a smart move to prevent the potential debt cycle that the holidays can bring. Paying with cash instead of plastic will help keep your credit utilization ratio low. This ratio compares total credit available to you with the amount of credit you have used. A low ratio means you do not use very much of your credit. Remember that your credit utilization ratio accounts for 30 percent of your credit score.
Apply for a credit card with a low APR
While cash is king, 47 percent of respondents were still planning to use credit cards for their holiday shopping last year. If you’re planning on pulling out plastic for this holiday shopping season, you may want to pay a visit to your local credit union before you start swiping.
According to data from the National Credit Union Administration, the average interest rate of a regular credit card from a credit union was 11.61 percent as of September 2017. At the same time, cards from banks came with an average rate of 12.96 percent. (See also: Best Low Interest Rate Credit Cards)
Let’s assume that you were to spend $1,000 with a credit card and pay it all back in three months. With a 12.96 percent APR, you would have to make three monthly payments of $341. That’s $23 in interest payments for that $1000. Another way to avoid interest charges on your holiday spending is to get a card that offers 0% APR on purchases for a promotional period.
By paying less interest, you’re more likely to make payments on time (which accounts for 35 percent of your credit score) and owe less to credit card lenders overall (which accounts for 30 percent of your credit score).
However, the most important thing is you make a commit to pay off your holiday purchases, so that you’re not still paying for it when the holidays roll around again.
Consolidate high-interest credit cards
Trying to reach the recommended 30 percent credit utilization ratio can feel like an overwhelming task when the majority of your monthly payment goes to cover high interest. One way to overcome this is to explore your options of consolidating balances of other cards with a personal line of credit or other type of financing.
Credit unions also beat national banks with lower rates for personal lines of credit. As of September 2017, a 36-month unsecured fixed rate loan came with an average interest rate of 9.20 percent at credit unions and 10.04 percent at banks. And during the holiday season, credit unions tend to offer even lower rates.
You could also do a balance transfer to consolidate high-interest credit card debt. To make this work, you’d need to open a new credit card offering a promotional introductory rate on balance transfers. You may have to pay a fee to transfer your balance (typically around 3 percent), and you’ll want to repay your debt before the promotional APR window closes (typically between six and 21 months) and the rate increases. However, having a year or so to tackle credit card debt at a much lower interest rate can save you a great deal of money if you’re diligent. (See also: The Best 0% Balance Transfer Credit Cards)
Being able to consolidate your balances allows you slay your debt monsters faster, which will certainly make your holidays a little brighter — and improve your credit score. Remember that the longer you carry a balance on high-interest credit cards and loans, the more interest you’ll rack up on your debt, and the longer that your credit score will remain low. (See also: 5 Tricks to Consolidating Your Debt and Saving Money)