Credit is going to be tight this holiday season, and if your usual gift-buying plans include ignoring your maxed-out credit cards, opening a new store credit card, and getting 20% off all of your purchases, you may be in for an unpleasant surprise. This year, your application for a new credit card will probably be denied. Why? According to Newsweek magazine, most retailers no longer run their own credit card programs. Today, banks do it for them. The banks are getting pickier about the people they offer credit to, and they’re considering more than just your income, spending and payment history. They may also look at the unemployment rate in your community, and whether home prices in your neighborhood have dropped more than in other areas. Even worse, banks are lowering the credit limits of people who already have cards, which may further cut your spending power.
For example, some banks are resetting credit limits to twice your average monthly balance. Other credit card issuers are doing what’s called “chasing the balance.” For example, say your average monthly balance is $5,000. Your credit limit will suddenly drop to $5,000. As you pay down your debt, your credit limit will fall right along with your balance. Not only does it reduce your spending power, but it can also hurt your credit score – impacting your ability to get a car loan, a cell phone, or even a job. Why?
A big percentage of your credit score is how much credit you have available versus how much you’ve used. So, if you’ve got a $20,000 credit limit and a $5,000 balance, you’ve used 25% of your available credit. If your credit limit drops to $10,000, now you’ve used half of your available credit – and your credit score will drop drastically.
So, how can you salvage a Christmas without credit cards? Start setting aside a few bucks a week NOW so you can pay outright for your purchases. Check the credit limits on your cards before you go shopping. You’ll want to know whether it dropped because if you charge more than your new line of credit allows, you could be rejected at the cash register – or hit with a $30 over-the-limit fee. That’s the perfect recipe for a truly blue Christmas.
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