When shoppers pull out their plastic to pay for purchases this holiday season, they may be more focused on those inevitable credit card bills rather than finding the perfect gift. Given the current economy, they may be wondering whether they’ll be able to pay the bill when it arrives in January.
The consumer division of FICO, the credit scoring company, surveyed consumers last month and found that credit card debt is their biggest worry as the year winds down. That concern will figure into their gift giving. Two-thirds of respondents said they expect to spend less than $500 on their credit card this holiday season.
The survey takers said they don’t plan on getting new lines of credit either to finance shopping sprees. Only 20% of consumers who responded to the myFICO survey said they were planning to apply for a new credit card to charge holiday purchases. About half said they will use their existing credit cards to pay for all their holiday shopping. Approximately 30% said they will only use credit for the most expensive items on their lists.
Debt to credit ratio
Eighty percent of survey takers said they plan to use less than 25% of their available credit to fund holiday shopping. How much available credit is in use – known as debt-to-credit ratio – counts for about 30% of a person’s credit score. Keeping that percentage low boosts scores, while maxing out credit cards has a negative effect on credit scores.
Making a list, paying it off
How long do customers anticipate taking to pay off holiday debt? About 25% of them said it will take longer than three months to pay those bills in full. In 2010, only 18% thought it would take more than three months.
Even if cardholders can’t pay the total balance due, it’s important for them to pay at least the minimum amount by the due date. “Payment history is the most influential factor when determining an individual’s FICO Score,” according to Anthony Sprauve of FICO.
Besides credit card debt, people were also concerned about identity theft (62%) and the effect their spending will have on their credit score (14%).