The term “Black [Insert day of the week here]” has represented stock market crashes, bloody battles and often violent political demonstrations. Black Friday, or the day after Thanksgiving, is one of the biggest shopping holidays of the year. And we’re willing to bet that Black Friday shoppers may say the day is aptly named as violence and the demise of many shoppers’ personal economies is common practice.
The Nerds can’t do anything about the violence — except advise you to steer clear of shoppers with game face on — but we can help you keep Black Friday from harming your credit with these three tips.
1. Avoid utilizing too much of your credit
The second biggest factor in your credit score is utilization. Credit utilization is the percentage of your credit limit you’ve used. For instance, if you have a credit limit of $10,000, and you have a balance of $5,000, you’re utilizing 50% of your credit. Experts recommend keeping your utilization to 30% or less, but we think a conservative 10% to 20% is better.
Readers who pay off their credit card in full every month may scoff at this. Responsible credit utilization should be at 0%, right? Not necessarily. Credit balances are often reported to the bureaus mid-billing cycle. This means that any balance you have throughout the month may be reported, even if you don’t carry debt from one month to the next. To combat this, you can keep your total monthly spending low in relation to your limit or make frequent monthly payments on your balance.
2. Restrain yourself from Getting all the credit cards!
In the midst of your sale frenzy, you may be tempted to apply for a store credit card to get your goods at even lower prices. Then you might go to another store and get another credit card. And perhaps another at the next store. But limit yourself: Store credit cards are rarely a better deal long-term than regular credit cards.
Understand that your credit will take a small hit every time you apply for a new credit card. This is called a “hard inquiry” and it stays on your credit report for two years, while affecting your credit score for one year. Also, you’re more likely to get better rewards from a rewards credit card over the long term. Regular credit cards have lower average interest rates than store cards, costing you less if you carry any amount of credit card debt from one month to the next. They also tend to have much higher limits, keeping credit utilization lower. For all these reasons, we recommend refraining from opening store cards unless you shop there frequently enough that the perks outweigh those of a regular credit card.
3. Spend only what you can pay off in a timely manner
The No.1 thing you can do to improve or maintain a good credit score is make your payments on time. You don’t have to pay your entire balance to satisfy this requirement but you should. If you don’t pay off your entire balance, you’ll owe interest on the average daily balance. If it’s impossible for you to make your payment in full, at least make the minimum monthly payment by the due date.
The takeaway: Keep Black Friday from blackening your credit score by keeping your credit utilization low, restraining yourself from applying for store credit cards, and spending only what you can afford to pay off. Stay safe out there!
Woman with black shopping bags image via Shutterstock