Credit scores can go for a spin with holiday shopping

Christmas holidays might be coming to an end, but for all those who have spent their heart out, the credit card debt might be hanging on for some time. According to a survey, there were as many as 13.6 million customers who were paying off their credit card debt from last year`s holiday season. Holiday expenses that linger on for a long time, could be a huge drain, and also end up adversely affecting your credit score.

Credit score usually takes into account the available credit line for a customer in order to calculate the credit utilization ratio. However, if the outstanding balance is high, the ratio increases and, as more credit is used, the score comes down. So holiday shopping could definitely increase your credit utilization ratio, and reduce your credit score.

It has also been revealed that about 30% of the FICO score of the credit card customers come from the credit utilization ratio. There is no doubt about the importance held by the FICO scores, which are calculated through the most widely followed scoring model. Hence, credit card customers could do well by keeping the outstanding balance as low as possible; thereby, keeping the credit utilization ratio to a certain limit. Interestingly, all is not lost, even if you spent a lot during these recent holidays. You have to ensure that you are on time with your credit card payments. That is because, the bill payment history, and the consistency and diligence with which you do it, accounts for about 35% of the FICO score which is quite substantial.

Credit card customers who have spent a lot during the recent holidays, especially for Christmas, can actually reduce their expenses going forward, until they pay off the outstanding balance. If the payment record is clean, then it would definitely increase their credit scores.

Another thing that customers have to keep checking is their credit limit. The Credit CARD Act that has brought reforms in the credit card industry doesn`t mandate the card issuers to provide 45 days advanced notification to customers, for changing their credit limit. Customers, who are not aware of their limit being reduced, might find themselves paying the over-draft fee for going over the limit. Checking the credit line every month would ensure that you are not adversely affected by any changes.

Jennifer Brown

Jennifer Brown, an external business consultant working with a Fortune 500 company, has years of experience to her credit. Despite having a busy schedule through the day, she takes time out to write articles dealing with credit cards, payday loans and other financial aspects. She has completed her Bachelor degree in Financial Services from Columbia University and has been actively involved in various activities for the betterment of society.