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11 tips to protect your credit this holiday season

By , CardRatings contributor
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    Protect your creditYour credit score can tank as fast as the holidays approach if you're not careful.

    You get in the spirit of the season, feeling grateful for friends, family and… plastic and suddenly things are out of control. Freezing the cards no longer deters you because nowadays you can swipe, slide, tap, enter or scan credit cards. It's become increasingly easy to build your mountain of debt and still quite difficult to raze it.

    Here are 11 ways you can protect your credit (or even improve it) during the holiday season.

    1. Spend below your max

    You know Christmas is coming and you want the biggest gifts under the tree to be from you, but your funds are lacking this year. What's a person to do? Max out your existing credit cards and possibly apply for a few more, naturally. But hold on, your credit score is based, in part, on your debt-to-available-credit ratio. That means that if you have $10,000 in available credit and run up $9,500 of credit card debt this season, your ratio will take a serious hit. And we haven't even talked about the staggering amount of interest you'll be paying if you don't get that debt paid down very quickly.

    BONUS TIP: Sometimes spending a bit more than you can afford to pay off right away happens. Before you resign yourself to simply paying interest on that, you could consider a balance transfer credit card offer. These offers provide you with a number of months to pay off a balance transferred from another card without paying interest on that balance. The Citi Simplicity® Card - No Late Fees Ever offers a whopping 21 months of no interest on balance transfers for new cardholders, for instance. In most cases, you'll pay a balance transfer fee of anywhere from 3 to 5 percent, but that fee might very well be worth it if the alternative is paying major interest on the balance over the course of many months. Check out CardRatings editors' picks for the best balance transfer credit cards.

    2. Don't skip your way down the credit ladder

    Before you think, "OK, I won't open a new card, but maybe I can find a little extra by skipping the [insert bill payment here] just this month," think again. This method is a sure-fire way to bring down your score, and fast! Even utility bills are included on your credit report now. One missed payment and you'll be starting the new year off on the wrong foot.

    3. Keep cards open

    Did you know canceling credit cards will also leave you in trouble? A contributing factor in determining your score is your length of history - an estimated 10 percent of your score, in fact. So keep those cards open! Additionally, every card you close reduces your available credit, which can negatively impact your debt-to-available-credit ration (See No. 1 above).

    4. Request carefully

    Another method consumers use to gain access to a little more margin is requesting a credit line increase. Do this carefully. Banks won't just say yes based on your history; they need to see how you are doing currently. Guess how they do this? Yup, you guessed it, a hard credit inquiry which will affect your credit. Now, if you're approved for the increase, your score will likely bounce back within a month or two since you'll be improving your debt-to-available-credit ratio. If you aren't approved, however, well, that hard inquiry is just there eating away at your credit score.

    5. Use your cards (wisely, of course)

    Now that you're not canceling your cards, and not maxing them out, you actually do need to use them to maintain that score. Creditors want to see that you can handle and manage the credit lines you've been given. So use them and pay them off each billing cycle.

    6. Remember: New line, new inquiry

    Do you have a new smartphone or tablet on your naughty-or-nice list this year? Before you buy, make sure they won't do a hard inquiry to add service. You would be better off keeping the old phone and higher credit rating, than getting the latest device.

    7. If it's too good to be true…

    Furniture stores, for instance, love enticing you during the holidays with promises of grandeur: a TV the size of your house, new furniture sets for every room - all with a three-year, 0% financing offer. Say you get approved for $6,000 and your purchase is $5,999. That's perfect, right? Not really. Remember that debt-to-available-credit ratio - if you don't make payments until the 0 percent offer is nearing its end, you'll be carrying a maxed-out credit line for three years! Talk about a hit to your credit!

    8. Avoid store credit cards (generally)

    Similar to No. 7, be cautious when it comes to those store credit cards. Sure the, "open a card today and receive 30 percent off your purchase" offers are tempting, especially during the expensive holiday season. But you MUST know what you're getting into. The APR on store cards is often sky-high and a good deal may tempt you to spend more then you can truly afford just to take advantage of the discount. If you can't pay off the bill right away, you could be looking at crazy-high interest.

    As for your credit score, all those hard credit inquiries as you blast through store credit card applications could make a serious dent in your score.

    9. Wait. Impatience is not a virtue

    Did you ever consider your personality as a reason your credit score might be lower? Or why you make the wrong financial decisions?

    According to a 2015 study, researchers from Columbia Business School and Stanford University wanted to examine the reasons some people default on their mortgages, and what they found can easily be extrapolated to consider how people pay their credit cards, auto loans and any other bill. Ultimately, their study revealed that people with low credit scores were more likely to select immediate rewards rather than waiting for a larger reward in the future.

    For their study, the researchers went to a community center that offered tax preparation help and sought out 437 customers with low to moderate income. They were able to get everyone to agree to have their FICO credit scores accessed and were offered cash rewards ranging from accepting $22 in cash right away or waiting a month and then getting $50. In general, the people who took the immediate $22 had the lowest credit scores of the bunch and people who were willing to wait for the $50 reward showed credit scores about 30 points higher.

    What this means for your holiday spending is that you should be careful to consider all the ramifications before you do your spending. Maybe there's a better deal elsewhere. Perhaps your budget really can't handle that particular gift. You don't have to go to every party.

    Sometimes just a little patience means not maxing out a card or defaulting on a payment and it can help preserve your credit score long term.

    10. Don't let someone else ruin your credit

    Identity fraud is always something to guard against, but during the hustle and bustle of a holiday season it will behoove you to be extra protective of your credit card info.

    Enter that card info into just one sketchy website and you could be handing your credit card - and, by extension - your credit score to a thief.

    Being aware of your actions can help tremendously. Get a card that's chipped, so scammers can't get your information easily. Sign up for transaction emails, so you know what's being charged is accurate. Only shop on well-respected, well-encrypted websites.

    Fraud is common and unfortunately like a tsunami to your credit report. Find more tips here.

    11. Educate yourself

    You can't know when your rating drops if you don't know your rating in the first place. Before it gets hectic, know where you stand. Get a copy of your report for free, and go over it carefully, making sure there are no errors. Like the saying goes, "Knowing is half the battle."

    Take our advice, enjoy your holidays, shop wisely and remember: moderation is the key to your credit score success.

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