It seems like every year during January and February, as I pull new credit reports for people entering a mortgage contract, I continue to shock them with their FICO scores. They’re always a little lower than what they expected, and the culprit is holiday shopping.
How does this happen? As people put their holiday shopping on credit, their balances increase and they inch closer and closer to their limit. Whenever this happens, your FICO score automatically drops. A large percentage of your credit score is determined by how your balance stands in proportion to your limit. If you have a $1,000 limit and you max that out, even if you intend to pay it off the following month, credit scores are delayed by 30 to 60 days. This means the impact of your January payment won’t be seen or felt until later on in February or possibly March.
To keep your score up during the holidays, there are a couple of things you can do. First, you can spread out your balances across multiple cards. If it’s early enough, you can also ask for a credit limit increase if you know you’ll use a lot of your revolving limit during the holiday season. All you have to do in this case is call up your credit card company around the holidays—they’re always willing to increase your limit. Be cautious that you don’t overspend at the same time, though.
If you have any questions about this topic or you’re thinking of buying or selling a home soon, don’t hesitate to reach give me a call or send me an email. I’d be happy to help you.