How to Build Better Credit During the Holidays (So You Can Buy a Home)

With Black Friday and Cyber Monday already behind us, the holiday shopping frenzy is officially under way. It’s easy to get lost in the chaos of shopping carts and gift lists, but it pays to be particular about your spending this time of year – especially if your plans include buying a home in the coming months.

Person holding credit card and shopping using a laptop while sunlight streams through window

Bad credit card habits can come back to bite you when you apply for a mortgage loan, so try to be mindful of your purchasing practices as you shop for loved ones this season. For specific advice to fit your fiscal situation, you should contact a trusted financial advisor. However, these responsible tips should help you get started, no matter what your monetary circumstances are.

Start preparing to buy your dream home with these four smart habits that will get you through the holidays with your credit score intact (or improved!).

Dispute errors or fraudulent charges immediately

It’s always a good idea to closely monitor your credit card transactions and make sure your receipts match what you see online or in your bill. You’re more likely to notice fraudulent charges early on, and you can dispute any erroneous charges as soon as they come through. However, during the holiday madness, little mistakes (such as an accidental double-charging) are easy to miss. It’s crucial that you keep a discerning eye on your credit charges during this time, as errors or fraud can drastically impact your credit score.

Errors to look for include paid-off collections accounts that are still marked as unpaid, records of late payments or paid tax liens that are seven years or older (these should be removed from your credit history), or credit accounts that were closed by you but are listed as being closed by the provider. And of course, any fraudulent charges have the ability to run up your credit bill and you may not be able to cover the costs. If you notice anything out of the ordinary crop up on your bill, you can contact your credit company as soon as possible to get it solved.

Keep your balances low

This is the one habit most folks struggle with during the holidays, and for good reason. It’s understandable that many people would want to buy their presents with credit and pay it off later, but if you want to raise or maintain a good credit score, it’s best to keep your card balances low.

Experts like suggest only using 30% of the available credit on each card. Attempt to pay down the balances of any cards using more than 30% of your credit allowances. By lowering your balances and keeping your credit usage at a minimum, you build trust with your credit company and prove yourself a responsible customer capable of paying off debt – which is exactly what the lenders will be looking for when you go to get pre-approved for that mortgage loan.

Set up payment reminders

When it comes to improving your credit score, late payments are a major no-no. Consistently missing payment deadlines will cause your credit score to drop, and raise red flags with creditors and lenders. Pair this with the blink-and-you’ll-miss-it nature of the holiday season, and you have a potential disaster on your hands.

However, you can prevent a missed payment this December (and forever, really) by setting up automatic payment reminders in your calendar or your phone. Adding these reminders will keep you on track with your payments despite all of the yuletide distractions.

Don’t open new cards OR close old cards…without good reason

This may sound like crazy advice, but the logic behind it is sound. Don’t open or close additional credit cards right now unless absolutely necessary. Closing credit card accounts actually reduces the amount of credit you have available to you, and that can negatively affect your credit score. Additionally, the length of your credit history is also important, so think twice before closing a card that you’ve had for a long time. The paper trail of years of on-time payments is like a badge of honor on your credit report, and you don’t want to eliminate that.

On the opposite end of the spectrum, applying for new cards can also mess up your credit score. Each time you apply for a credit card, the company does a hard inquiry on your credit history. The fewer inquiries you have, the better your credit score will be. So for the time being, concentrate on paying down your cards without closing them, and try not to open a new one unless it’s absolutely necessary. Your credit score with thank you.

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