Using credit cards instead of cash or debit for holiday shopping, traveling and entertaining has certain advantages:
ZERO LIABILITY: If your wallet is lost or stolen, the cash it contained is probably gone forever. If your credit card is lost or stolen, chances are good you won't be responsible for even a penny of any unauthorized charges.
REWARDS: Unlike most debit cards, many credit cards offer cash back, airline miles or points you can use for products, services or gift cards at a discount. Some cards offer additional rewards on certain categories each month, so swiping the best card for each category could rack up super-sweet perks.
ONLINE DEALS: You can't shop online with cash, and that's where you might find some of the best holiday shopping deals and discounts. Shop online and compare prices before you purchase anything in a brick-and-mortar store.
HOLIDAY SPECIALS: Some credit cards offer holiday specials to encourage you to use their card instead of another for holiday shopping. There are rules, so you'll need to do some research to find out how to maximize the value of using your cards.
But be careful
Despite the benefits, it is important to use a credit card with care, especially during the holiday shopping season. Here are some important tips to keep you financially healthy:
BUDGET: Never spend more with a credit card than you can afford to pay off in one month. Paying interest for months on top of money you didn’t really have in the first place isn’t smart.
STUFF IT: One idea is to put cash in an envelope after each credit card purchase that you make throughout the month. That way, you will have enough at the end of the month to pay the bill.
TRACK: Keep track of your purchases in real time by using a mobile app or adding up your receipts while you shop. When you’ve hit your limit, stop.
DIS-ADVANCE IT: Avoid taking cash advances on your credit card. Unlike regular credit card purchases, there is no grace period on cash advances, and the creditor will likely charge a very high interest rate.
RESIST ‘EM: Don't open up new lines of credit that you don’t need just to get a gift with purchase, a temporary cash-back bonus or a discount for a day or a weekend. And avoid department store or major credit cards that come with high interest rates or fees.
DON’T DELAY: Try to finish all your shopping by Dec. 15. The risk of over-spending is higher if you shop late in the season and with multiple credit cards instead of cash. You will also have plenty of time to wrap and mail your gifts and take care of other tasks before the holidays hit.
And watch that score
If you are looking to buy your first home in 2015, it is vital to use credit cards in a manner that increases, not decreases, your FICO credit score and positions you as creditworthy. Here a few tips to do that:
PAY ON TIME: Pay all your credit cards bills on time or, even better, sign up for automatic payments. Late and skipped payments can really hurt your credit score. Most people are super busy in the holidays, and paying a bill can slip their minds.
PAY IT TWICE: If the holidays will bring you up close to your credit limit, it could damage your score. Your credit score is incredibly sensitive to how much you are charging compared to your credit limits. A solution is to pay off the bill in two installments – one before the billing cycle closes, and one after. This can keep you well below your credit limit.
KEEP IT LOW: High credit card debt has a negative impact on your credit score, so you should keep your balances below 30 percent of your approved credit limit. Paying off the debt is better than moving debt from card to card. Pay off the cards that carry the highest interest rates first.
THE FEWER, THE PROUD: The first few credit card accounts that you open will build and improve your credit score, but after that, new credit cards – especially retail or gasoline cards – can lower your credit score. Limit your cards to two or three, which is typically all a person needs.
OLDIES BUT GOODIES: Lenders like to see borrowers who have successfully maintained lines of credit for years, so don’t close that credit card you opened five or ten years ago if it’s still open. Instead, use it once a year and pay it off after the billing cycle ends. The holidays might be the best time to use that card for a purchase you can afford.
A loanDepot licensed loan officer can help with these and any other lending questions. Call (888) 983-3240 to speak with one today.
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