How to Build Your Credit While Holiday Shopping

By Rebecca Lake
December 2, 2020
Chime is a financial technology company, not a bank. Banking services provided by The Bancorp Bank or Stride Bank, N.A.; Members FDIC

For most of us, the holiday season can bring a (pretty big) uptick in spending.🤑

While you might be focused on finding the perfect gifts for fam and friends, it’s also worth taking some time to understand how – if you play it right – your credit score could actually improve while you work hard to spread that holiday cheer.  

We’ll keep it quick – by breaking down the five factors that contribute to your credit, and then sharing pro tips for how to take advantage of em. Ready? 

  1. First, here’s how your credit is calculated
  2. Put credit card payments on autopilot
  3. Keep track of credit card limits
  4. Choose wisely when opening new credit card accounts
  5. Consider a small personal loan for holiday shopping
  6. Don't rush to close credit card accounts after the holidays
  7. Don’t forget to keep tabs on your credit

First, here’s how your credit is calculated

FICO credit scores, the scores used by 90% of top lenders, are based on five factors:

  • Payment history (35%)
  • Credit utilization (30%)
  • Credit age (15%)
  • Credit mix (10%)
  • Inquiries for credit (10%)

Now that you know how much each factor impacts your score, let’s check out some best practices.

Put credit card payments on autopilot

Factor: Payment history

If you only use one tip, let it be this! Payment history carries the most weight of all credit score calculations. 

Planning to use a credit card for holiday purchases? Setting up automatic payments to that card (or multiple) is one of the easiest ways to build your credit. Here’s why: Automatic payments take away the worry of late payment fees and credit score damage. Period. 

If you can’t commit to automating credit card bill payments from your bank account,  the next best option is to set up bill payment alerts. Even when we mean to be timely, life can still get in the way. So creating bill payment alerts – either with your credit card company or through your bank – is a smart way to stay on top of due dates, every month. 

Keep track of credit card limits

Factor: Credit utilization

Credit utilization is the percentage of your credit limit you’re using at any given time. 

What’s yours? You can check your balances against your limits online. To calculate your utilization ratio for each card, simply divide the balance by the limit and multiply by 100. 

Knowing your card limits can also help you plan your holiday shopping strategically. For example, say you have a card with a $5,000 limit and you want to keep your utilization ratio at 30%. You’d want to keep your card balance at $1,500 or less to avoid going over that threshold. So remember this: less is more. The less credit you’re using, the more likely you are to have a positive impact on your score. 

Note: This is another factor where alerts can help! You can use them to monitor your balances and notify you when you’re getting close to your credit limit. That way, you have a chance to hit pause on new purchases and make a payment to help bring down your balance.

🤑 Pro Tip: If you want to prevent credit utilization from negatively impacting your score, try opting for a credit card that doesn’t report it to the credit bureaus. Credit Builder, for example, doesn’t report credit utilization so – if you happen to charge a higher balance for holiday shopping – you won’t have to worry about it hurting your score.

Choose wisely when opening new credit card accounts

Factor: Inquiries for credit

Opening a new credit card for holiday spending could make sense if you’re able to snag a sizable intro bonus or earn some valuable rewards. 

But keep in mind that each new inquiry for credit can trim a few points off your credit score. So if you’re shooting to boost your credit over the holidays, opening multiple new credit card accounts isn’t a good way to go. In fact, too many inquiries for new credit can send the wrong single to lenders. 

Instead, it’s better to shop around and compare card offers carefully to find one that fits your spending style and needs for the holiday season and beyond. If you’re brand-new to credit, that also includes looking into secured credit cards. The Chime Credit Builder Card, for example, is a secured card that has no interest, no annual fees, and no minimum security deposit is required to apply (which is good if you have little to no credit history).

Bottom line: While retail store cards may be easy to get and offer a large discount on your first purchase, they can also carry high interest rates and offer fewer ongoing rewards than traditional rewards cards. 

Consider a small personal loan for holiday shopping

Factor: Credit mix

Credit cards aren’t the only option for building your credit over the holidays: You might also consider a small personal loan to pay for all the items on your holiday shopping list. And using a personal loan alongside a credit card can help improve your credit mix, which can positively impact your credit score. 

How? When you get a personal loan, you’re getting a lump sum of money that you can use for holiday spending or any other purpose. As you pay back the loan on time and reduce your balance, that can help build your credit score. You can find them at banks, credit unions and online lenders. 

You won’t earn rewards with a personal loan. But if you already have a decent credit score, you might be able to get a small loan with a more favorable interest rate compared to what your credit cards charge. Just remember: similar to opening a new credit card account, you’d want to compare loan options to find the right lender. The fewer hard inquiries for new loans you have on your credit report, the better. 

Don't rush to close credit card accounts after the holidays

Factor: Credit age

When the holidays are over, you might consider closing your credit card accounts. After all, if they’re closed then you can’t make new purchases and add any debt, right?

But closing credit cards during or after the holidays could actually hurt your credit score in more ways than one. 

  1. It can impact your credit age: Having older credit cards, loans and lines of credit in your name can help your credit score. On the other hand, closing cards down can affect that average credit age, and in turn negatively affect your score.
  2. It can skew your credit utilization ratio: When you shut down a credit card, that reduces your total credit limit. If you have outstanding balances on one or more of your cards that could cause your utilization ratio to increase overnight, potentially damaging your score. 

Before closing any cards, make sure to look at the individual features and benefits to help you decide which ones to keep. For example, it could make sense to keep a card that rewards you with cashback on groceries and gas as well as shopping. Just double check the card’s APR and annual fee to make sure those costs are justified by any rewards you might earn. 

Don’t forget to keep tabs on your credit

The holiday shopping season often brings a rise in fraud and identity theft. So it’s important to keep a close eye on your credit during this time. Setting up alerts to notify you of new card transactions, reviewing your credit card statements, and checking your credit report regularly can help spot any potentially suspicious activity. And once the holidays are over, you can continue those same habits to ensure your efforts to build credit don’t go to waste. 

The bottom line

The holidays are stressful enough without worrying about your credit score! These tips can help you build better credit through the holidays so you can start the new year on the right (financial) foot. 🤗


This page is for informational purposes only. Chime does not provide financial, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal or accounting advice. You should consult your own financial, legal and accounting advisors before engaging in any transaction.

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