Financial Impact Of The Holidays On Your Credit Score

The winter holidays can be the most wonderful time of the year—but they can also be the most expensive. With gift buying, holiday travel and festive gatherings galore, the holiday season may have an outsize impact on your bank account and your credit score.  

Still, it’s not all bad news. With a little forethought and mindful planning, it’s possible to protect your credit while still enjoying all the merriment of the season. 

Holiday Spending Patterns 

The National Retail Federation is reporting that holiday spending in 2024 will reach a new record of $902 per person. That figure covers the most common holiday retail purchases, from gifts to food to decoration, with the largest portion of funds being spend on gifts for friends and family.  

Of course, beyond retail purchases, travel spending also tends to increase over the busy months of November and December. A report from PricewaterhouseCoopers (PwC) found that travel spending for the holiday season is on the rise, with Millennials and Gen Z accounting for this year’s above-average expenditures.  

Beyond gifts and travel, other common costs around the holiday season may include festive meals out with friends or work colleagues, host gifts for Thanksgiving and other winter parties, and new clothing for anyone wanting to stay warm and stylish as the thermostat falls. Families may be especially susceptible to outsized spending over the holidays, due to a desire to keep the kids entertained when school’s out of session. The cost of cinema trips, ice skating and visits to Santa’s Village can add up fast.  

How Holiday Spending Affects Credit Scores  

Maintaining a good credit score helps you qualify for better financial products. With a good credit score, you can get a lower-interest auto loan, or a credit card with more rewards. Your credit score may also influence your ability to rent an apartment, qualify for a home mortgage, and even get a job. 

Your credit score goes up or down depending on a number of factors. Making on-time credit card and loan payments, having a longer credit history, and utilizing less credit compared to your credit limits will boost your score. Not paying off your entire credit card balance or missing loan payments will likely lead to a lower credit score. 

During the holiday season, it’s important to be aware that higher credit utilization may negatively impact your credit score. In other words, if your credit limit is $5,000 and your balance is $4,950—that’s high utilization and your score may fall accordingly. Opening new credit accounts can also cause a dip in your credit score, so think carefully before applying for a new card for holiday purchases.  

Strategies to Protect Your Credit Score 

If you’re concerned about managing your credit score over the coming holiday season, use these tips to help: 

• Know your score: Go into the festive months with a firm sense of what your credit score is at the moment, so that you can monitor any changes later on and adjust your spending behavior accordingly.  

• Set a holiday budget: While time is often at a premium in November and December, taking two hours to plan out a holiday budget will pay off big time. More planning almost always means less spending, if you can set a budget and stick to it. 

• Spend with debit or cash: If you can avoid credit card purchases, you can avoid over-utilizing your available credit and lowering your credit score.  

• Shop smarter: By shopping at thrift stores, creating DIY gifts and avoiding high-priced grocery items, it’s possible to significantly lower your holiday spending. Make it a game to get creative and spend less—and never shop without a list. 

• Monitor credit reports and scores: Keeping an eye on your credit score over the season will help promote healthier spending habits. Plus, checking your credit score often is a smart way to help avoid fraud—as a sudden change in credit score could indicate identity theft. 

Post-Holiday Recovery Tips 

Despite our best laid plans, holiday spending may get out of hand. If you end up starting the new year with a low credit score—don’t panic! You can still turn things around. Some credit cards offer a 0% intro APR on balance transfers, which means you can move your debt to a new card and pay it off with less interest. Another smart strategy for reducing debt after the holidays is to speak with a financial expert. HFCU members get free access to debt counseling and a debt management plan through GreenPath.