Holiday Credit Card Do's and Don'ts

Brushing Up on Holiday Credit Card Basics Can Help You Avoid Spending Pitfalls

holiday credit card
Credit cards be convenient for holiday shopping, but it's important to use them wisely. Jamie Grill/Getty Images

The holiday shopping season officially kicks off on Black Friday and this year, it's estimated that the average American will spend $967.13 on holiday shopping. While some shoppers plan to pay with cash, 50 percent of consumers say credit cards are their preferred method of payment for holiday purchases. 

The problem is that using a holiday credit card to shop can easily lead to a debt hangover in the new year.

Using your card responsibly and knowing what pitfalls you should avoid can make your holiday shopping experience as smooth as possible. 

Holiday Credit Card Do: Know Thy Rewards Program

A rewards credit card be a goldmine for savings on holiday shopping. If you have a card that offers cash back when you shop online or at department stores, for example, you could apply the rewards you earn as a statement credit later. That's effectively the same as getting a discount on the things you buy. 

You can also leverage rewards for holiday shopping in a different way. For example, if you have a card that pays points on purchases, you may be able to redeem them for gift cards or merchandise from partner retailers.

Or, you can increase the number of rewards you're earning by shopping your card's online shopping portal. These portals may offer a points or cash back bonus, or big discounts, when you shop with partner merchants.

If it's been a while since you reviewed your card's rewards program, now's a good time for a refresher on how you can earn (and redeem) your rewards

Holiday Credit Card Don't: Chase Discounts With Store Cards

During the holiday season, it may seem like you're being offered a new credit card at every store you shop.

Retailers may offer a large discount on your initial purchase or other incentives to tempt you into signing up but buyer beware. 

While retail store cards may offer some initial savings, they may not be as useful as a traditional rewards credit card in the long run, particularly if you don't frequent that store often. Another potential drawback centers on cost. Retail store cards may charge a much higher annual percentage rate for purchases than a regular credit card, costing you more over time if you carry a balance.

Finally, remember that while a holiday credit card offer may be enticing, each inquiry for new credit shows up on your credit report. Applying for multiple credit cards over the holidays can drain away points from your credit score. 

Holiday Credit Card Do: Set a Budget for Spending

Using a credit card isn't an excuse to shop without abandon over the holidays. Psychologically, a credit card can help you avoid the pain of paying that's often associated with using cash, but it can lead you to spend more as a result. 

Don't have a budget for holiday credit card spending? Start by making a list of everyone you plan to buy gifts for and how much you'd ideally like to spend. Then, review your monthly income and expenses.

How much could you reasonably afford to spend and still be able to pay your credit card bill in full when it arrives? Does that match what you've budgeted?

If not, you may need to cut back on the amount you're spending on gifts. Transferring the balance to a card with a 0% APR after the holidays may also be an option. But, you'll need to calculate whether you'd be able to pay the balance off in full before the promotional rate expires to avoid interest charges

Holiday Credit Card Don't: Max Out Your Cards

Your credit utilization ratio plays an important part in determining your credit score. This ratio represents how much of your available credit you're using at any given time. Carrying high balances can detract from your credit score in a big way. 

A good way to avoid maxing out multiple cards over the holidays is to choose just one card to use for shopping.

This may be the card that offers the highest rewards rate on purchases. Or, it may be a card that has a low ongoing APR for purchases.

Either way, stick with one card and monitor your balance to make sure you're staying on budget. An easy way to do this is by setting up text or email alerts when your balance reaches a certain level. 

Holiday Credit Card Do: Shop Safely and Monitor Your Accounts

Credit card fraud can happen at any time but it can be especially pervasive during the holidays, when Americans are swiping their credit and debit cards or shopping online more often. Seventy-five percent of Americans say they're concerned about being affected by a data breach occurring over the holidays. 

If you plan to use a credit for shopping in-store or online, here are a few things you can do to stay safe:

  • Always "dip" your card's EMV security chip, since swiping the stripe doesn't offer the same level of security protection. 
  • Consider linking your cards to a secure mobile payment app, like Apple Pay or Google Wallet
  • When shopping online, stick to secure websites and always check for an SSL security certificate. 
  • Avoid using your credit card to make online purchases via public WiFi networks.
  • Use caution when making credit card purchases from third-parties through Amazon, eBay or similar sites. Verify the seller's information before handing over your credit card details.
  • Set up account alerts to notify you of new purchases and check your statements regularly for signs of potential fraud. 

You may want to sign up for free credit monitoring services if you have multiple credit card accounts. Even if you're only using one card to shop, it's important to keep tabs on all of your accounts to make sure an identity thief isn't trying to spoil your holiday cheer.