How Shopping At Christmas Can Be Bad For Your Credit

The holiday music is playing, Starbucks coffee is coursing through your veins, you are almost finished with your shopping and then you notice the CLEARANCE SALE signs in the window.

What do you do?

There has to be something in there worth buying. As you painstakingly peruse through all the racks, shelves, boxes and stacks there it is – the perfect gift for your loved one. Just the right size and it’s his/her favorite color. And it’s 60% OFF!

Waiting in line your mind wanders off to Christmas morning when the gift is unwrapped and the smile appears on the face and you’ve hit the happy button on your special person. Life is good!

Then as you approach the checkout counter the salesperson says, “If you get our (insert store name) card I can take another 20% off of your purchase today. Would you like to take advantage of this great deal?”

STOP!

Let’s review – Coffee, Clearance Sale, Christmas Shopping, Credit Card

Here’s the math: 60% reduction of the sales price plus another 20% if you get the card – Wow, you’re saving 80%. That’s great, right?

NO, NO, NO, NO, NO

1.  You are getting 80% off; but how much was it marked up from the original wholesale price?

200% – 300% – 400%

Who knows for sure?

2.  What happens when you get the credit card? Sure, another 20% off the sales price but…………………………..

1. The store will have you complete an application and they will access your credit report. This will count as an inquiry.
2. With a brand new revolving account on your credit report, you will see a reduction in your credit score. Depending on what your credit score is before you get the new credit card, it can take six (6) months or more before your credit score recovers to the same as it was before you accepted the new card

Note* – That is if all else stays the same on your credit report (i.e. no other new cards, late payments, collections, charge offs, etc).

Department store or merchant cards are detrimental to your credit report and credit score. Let me explain.

When you make a payment on a revolving account, you may/may not reduce the balance owed. After payment is made on a revolving account, more can be charged between the time the bill is received, payment is mailed, payment posted to the account and the information sent to the credit bureau to update the information on your credit report. If you keep a balance on your account, that 20% discount you received on that purchase goes away after a couple of months.

If you compare this with an installment account (car loan or mortgage), each payment you make reduces the balance owed. What type of account do you think carries the higher risk – installment or revolving?

Imagine if someone had 3, 4, 5 or more credit cards. What impact does that have on the credit score? It depends.

• How long have the accounts been active?
• Are there any late payments on the accounts?
• Are there accounts with past due amounts?
• Any of these new accounts?

Caution should be exercised when the opportunity arises to get an additional 20% off a purchase. Do you really need another card?

Do you understand what it WILL do to your credit score? Can you use cash or a card you have to complete the purchase instead?

When the wise men brought gifts to the baby Jesus of gold, frankincense and myrrh; do you think they put those on a charge card? Of course not.

Credit cards are both a blessing and a curse. If you have to charge a Christmas gift purchase on a credit card, is that the right thing for you to do? Think about it.

Merry Christmas

CM