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Don’t let your credit score suffer a holiday hangover

Brady Porche

You survived the holidays – it’s time now to discard boxes, vacuum up fir needles, eat nothing but leafy greens and monitor your credit score.

Your stomach and your trash bins are not the only things that can get overstuffed during the holiday season. Many of us rely on credit cards to cover most or all of our gift purchases, only to experience sticker shock when our first card statements of the new year arrive.

Holiday splurging can also take a toll on your credit score. According to a new report from FICO, one-third of Americans increased their revolving debt by at least 10 percent from October 2016 to January 2017.

Of those consumers, 57 percent saw their FICO scores drop, and one in five lost 20 or more credit score points.

There are many reasons why your credit score could plummet by the time the ball drops on New Year’s Eve.

Credit utilization – the amounts you owe relative to how much credit you have available – is the second most important scoring factor in FICO’s model, behind payment history.

If you ring up too much card debt, your overall utilization could skyrocket, depending on how high the credit limits are on all your accounts. (Many experts advise cardholders to keep credit utilization below 30 percent to maximize their scores, but it’s just a rule of thumb, and you should keep your balances as low as possible.)

Overspending can also put you in danger of not being able to make even your payment, which could drop your score by as much as 110 points.

Fortunately, most of us are staying on top of our holiday credit card bills – FICO said the percentage of consumers with missed payments ticked up by only 0.35 percent between October 2016 and January 2017.

Nevertheless, it’s important to keep an eye on your credit after the holidays, particularly if your New Year’s resolutions include buying a home or a new car.

Here are three ways you can maintain a good credit score after you’ve racked up lots of holiday debt.

1. Get a balance transfer card.
A balance transfer card is a great way to pay off debt at a lower APR than what your existing card charges. The best balance transfer cards offer new cardholders 0 percent interest for 12 months or more, our recent survey found.

Balance transfer cards also can help your credit score by increasing your overall available credit, provided you don’t pile on more debt after you transfer the balance from your old card to the new one.

Keep in mind you’ll need a good credit score to qualify for the best balance transfer card offers.

2. Use your tax refund to pay down your balance.
If you’re expecting money back from Uncle Sam this year, resist the temptation to spend it and instead pay down your credit card debt.

Depending on the size of your tax refund, it could knock your credit utilization down to a score-friendly level in one fell swoop.

Don’t procrastinate – the sooner you file your taxes, the more quickly you’ll receive your refund.

3. Take out a small personal loan.
Many lenders now are offering creditworthy consumers personal loans that carry lower interest rates than most credit cards.

Paying down a credit card balance with a personal loan can help your score because revolving credit utilization carries more weight in FICO’s model than amounts owed on installment accounts.

As you recover from the revelry of the holidays, make checking your credit report and your credit score part of your routine in the new year. You can do both for free at CreditCards.com.

Much like Santa, card issuers and credit reporting agencies keep a year-round watch to see who’s been naughty and who’s been nice.

See related: 6 ways NOT to pay off holiday credit card debt, 9 things to know about balance transfers

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