How to Keep a Credit Limit Increase from Resulting in a Holiday Debt Hangover

The pinnacle of the holiday shopping season will be on December 23, according to market research company RetailNext. A credit card will frequently be the preferred method of payment for shoppers. On Black Friday alone, Americans opened 500,000 new shop card accounts.

Opening a shop credit card, even for the benefit of a discount off your initial purchase or 0% APR financing, can be detrimental in a number of ways. The regular purchase APRs on these cards are typically higher than those on ordinary credit cards, and having one may tempt you to spend more than you otherwise would (and possibly, more than you can afford).

Credit Sesame investigated how developments in store credit cards might change the way you spend around the holidays. Over the past two quarters, the average shop card credit limit has grown. The average balance has likewise gone up.

Let’s examine the data in more detail, then move on to some advice for limiting your credit usage throughout the holidays and beyond.

Where are there the highest gains?

For three distinct categories of credit cards—bank cards, department store cards, and Target cards—Credit Sesame examined balance and limit data.

While department store card limits increased by 10%, bank card limitations decreased by an average of 1% in the second quarter of 2016. Target cardholders experienced an average 6% rise in credit limit during that time. Bank card limitations grew by 1% on average in the third quarter of 2016, although card limits at department stores and Target increased by 11% and 7%, respectively.

That represents a substantial improvement over the same time period in 2015. While store card limits declined by 1% and Target store card limitations climbed by less than 0.5 percent in 2015 Q3, bank card limits grew by an average of 1%.

There are no significant increases in bank or shop card balances in Q2 2016. The average balance for both actually decreased by 4%. However, holders of Target cards saw an average 11% boost in their balances.

Shoppers begin to benefit from the greater available credit in Q3 2016. While department store card balances jumped by 11%, the average balance on bank credit cards increased by 6%. The highest jump in average card balances was seen at 21% for Target cards.

Do greater credit limits cause customers to carry more debt?

The results initially lead one to believe that consumers might charge more to their cards if there was more credit available. In the third quarter, prices do rise, probably in anticipation of the holidays.

The fact that credit card limits increased during the same period likely reflects creditworthiness in general and was a calculated move on the part of credit card providers (the bank is not likely to increase the credit limit for consumers with poor credit habits).

The New York Federal Reserve reports that in Q3 2016, the total amount of credit card debt in the United States climbed by 2.5% and reached $747 billion. In fact, between July and September of 2016, every category of non-housing debt—including student loans and auto loans—rose. For the fifteenth straight quarter, the total credit card limit grew.

According to Credit Sesame’s credit card statistics for 2015, limits and balances increased in 2016 in line with national trends. Conclusion: Americans are using more credit that is accessible to them.

Advice on how to control your credit usage over the holidays and into the New Year

Having credit card debt over the holidays or at any other time of the year can be detrimental in a number of ways. First and foremost, you run the risk of incurring high finance charges if you don’t pay your debt in full right away. If you pay off your balance before to the end of the promotional interest term, a credit card with a 0% introductory APR for purchases can reduce your costs.

Keep in mind that many shop cards provide deals with deferred interest. In other words, if you don’t pay off the entire debt before the promotional period expires, interest will be applied to the entire sum starting from the day of purchase. Simple zero percent offers nevertheless provide for some savings because you only pay interest on the balance you keep once the promotional time is up.

Your credit score is another possible drawback. Credit utilization accounts for about 30% of your FICO credit score. Only if you keep your balances in proportion to your available credit may higher credit limits work in your favor. Your score will suffer more damage the higher your balances.

Your financial goals could be more expensive or impossible to achieve if you have a poor credit score.

Over the holidays, keep your credit utilization low to prevent any damage to your score. What you can do is as follows.

Know your boundaries. Knowing your credit limits and balances for each card is the first step in maintaining a healthy credit use. Calculate how much you can charge on a new bank or store card before you reach 30% of your limit, and keep your spending below that amount. Pay the bill in full before the statement closure date if you must charge more than that (well before payment due date).

Create balance alerts to keep tabs on expenditures. Overspending is simple to do during the Christmas rush. To keep track, set up text or email alerts.

Request a bigger credit limit. Lowering your credit utilization is not the only method to improve it. Additionally, you can request a credit line expansion from your credit card company. Two things to keep in mind: Your credit report will often receive a hard inquiry as a result of this, and your utilization will only decrease if you refrain from adding to your debt after the limit has been raised.

Carefully inspect any new store cards. Before you strategically sign the application’s dotted line, think about the rewards. Make sure the new card is compatible with your budgetary goals. Also, pay attention to how many credit report inquiries you let. Your credit will certainly suffer temporarily with each enquiry. Future creditors can reject your application if you receive too many queries. For instance, if you have received more than two enquiries in the recent six months or three in the past year, certain creditors will immediately reject your application.

early payment Waiting until the last minute to pay off your shop credit cards may make your life easier financially, but it will hurt your credit utilization ratio the most. Payments are due roughly three weeks following the closing date of your statement; balances are published on or shortly thereafter. Your credit usage will be recorded at its lowest if you pay your payment in full before the balance is reported or in installments throughout the month.

No matter how high or low your credit limits are, your credit utilization has a big impact on your credit health and score. When more credit is made accessible to you, resist the urge. The people with the best credit ratings have credit accessible to them, but they never utilize it.

Obtain your free Credit Sesame report card today to learn how your spending habits may be impacting your credit score.

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