Money

Is Your Christmas Debt Affecting Your Credit History?

With Christmas behind us and the new year ahead, I’ve noticed my Facebook feed is full of resolutions from people who want to get their finances in order. The new year is a great time to get organised and improve your credit rating, ClearScore.com have compiled a great list to help you.

It’s easy to rely on credit at Christmas, especially when you promise yourself you’ll change your financial habits in January and be more responsible with your spending. You are not alone in this thought process either. Credit can act as a quick solution to help get your loved ones the gifts they want.

But did you ever stop to think about how it can affect your credit score in the long-term?

Probably not. After all, if you pay your bills, then what’s the harm?

Possibly more than you think.

The average family is estimated to spend around £35,000 on Christmas in their lifetime. Considering the average annual salary in the UK is £28,000, it is far exceeded before taking into account any interest on credit transactions.

When a lifetime of spending is totalled up like that, the figure is staggering! Not to mention around one in six families will borrow in the region of £700 each year to help them through the festive period.

Borrowing for Christmas can end up creating an endless cycle where families spend all year paying off the debt, only to need to borrow more money when Christmas comes around again.

This action in itself won’t harm your credit rating, providing you’re wise with your borrowing and prompt with your payments.

Outstanding debt is something to watch. The debt that just sits there on your credit card bill and never quite gets cleared. It can easily mount up from the interest too, meaning your credit utilisation increases without you even spending it.

The most sensible thing to do if you find yourself in this borrowing cycle is to monitor your credit rating (you can do this for free with ClearScore).

Why is your credit score important?

A good credit score can halve the interest rate you are offered on borrowing, saving you money in the long run and making it easier to pay back.

It can help you plan for the future and have an effect whether or not you are eligible for a mortgage.

There are a number of things you can do to improve your credit score (but you need to check it first so you can see how you’re doing). As I mentioned before ClearScore have put together a fantastic list to help you improve your score, I recommend that you read it and sign up for free to find out how you’re doing.

The new year is a perfect opportunity to get to grips with your finances. Treat it as a new start and teach yourself some good financial habits.

 

 

 

*This was a collaborative post

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