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How Soon Will My Credit Recover From Holiday Spending?

Dec. 30, 2019
Credit Score, Personal Finance
How Soon Will My Credit Recover From Holiday Spending?
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Generosity feels good, but opening your credit card statements once the gift-giving is over can feel like a weigh-in after a heavy holiday meal. The credit-score consequences of holiday shopping may not be as bad as you fear.

Here are some common credit-related regrets and how long it’s likely to take to recover.

‘It’s going to take a few months to pay this’

Paying your credit card bills in full every month is ideal — but not always realistic. About 48 million of us carried last year’s holiday charges into this fall, according to the 2019 NerdWallet holiday shopping report.

A high balance carried month to month can weigh down your credit score. The second-largest factor in your credit score is how much of your credit limit you’re using, which is called credit utilization. Experts advise keeping it under 30%, and less is even better.

How long it will take to recover: Your score will rebound quickly once you whittle down balances. “Debt incurred during the holidays only lasts on your credit reports as long as it takes you to pay it,” explains credit expert John Ulzheimer. “That could be a week or a decade.”

Consider creating a debt payoff plan. Whether you’re doing it yourself or enlisting the help of a nonprofit credit counselor, having a strategy can help you get your money under better control.

‘I overlooked paying a bill’

If you got a new credit card or pulled out a card you seldom use, you may miss paying it in your usual routine. Bills can wind up tucked into junk mail or misdelivered in the crush of holiday mail. Now’s the time to double-check you’re on top of payments.

If you’re late, contact the creditor and pay up quickly. A credit card issuer can charge a fee or raise your interest rate for being even one day late, but it can’t report a payment as delinquent until it’s 30 days past the due date. Pay at least the minimum due before then because a delinquent payment is devastating for your score.

How long it will take to recover: A missed payment stays on your credit reports for up to seven years, but the impact fades with time and as you add newer, positive information to your credit report.

‘I applied for a card to get a discount’

So, you wanted the 20% discount for getting a store card. You were approved at the cash register, and now you have a card you don’t really want.

Worse, the new card may hurt your credit in two ways: When you applied, there was a “hard inquiry” on your credit to evaluate your application, and the new account reduces the average age of your accounts.

How long it will take to recover: “The impact of the inquiries, if any, will last 12 months,” Ulzheimer says.

The impact on your average age of accounts will depend on how many other cards you have and how long you’ve had them — it could take years to recover. Closing unwanted accounts won’t help, because closed accounts can stay on your credit report for several years. “You might as well leave them open and at least benefit from the unused credit limits,” which help your score by lowering your overall credit utilization, Ulzheimer says.

‘I shopped with my smartphone using free Wi-Fi’

Nothing will happen to your credit score unless someone hijacked your credit card number or personal information to run up fraudulent charges. However, those risks are the very reasons identity theft experts caution against shopping with free Wi-Fi. Consumers used smartphones to order more than $10 billion worth of merchandise from Thanksgiving through Cyber Monday. It wasn’t all done on public Wi-Fi, of course, but it’s safe to assume some of it was.

If you are worried about identity theft, you can freeze your credit. You can still use your credit cards, but lenders can’t access your file to approve credit applications, which essentially blocks scammers from opening new accounts in your name.

Be vigilant about checking monthly statements for charges you don’t recognize.

How long it will take to recover: If someone steals your information and uses it, you’ll need to clean up the mess — whether it’s getting a new account number or filing an identity theft report.

With fraudulent charges, your liability is limited so long as you report it right away. But if someone has key personal information such as your Social Security number, your risk is lifelong.

Making 2020 regret-free

This year, what’s done is done. But looking to next year, Ulzheimer has a suggestion for a happier January: “Use your existing credit card for all of your purchases and then pay the balance in full before the statement closing date. That way you earn the rewards, avoid any credit reporting of the debt, and also avoid paying interest in the purchases.”

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