Five Tips for Getting More Credit for the Holidays
The holidays can be tough on a budget. A survey from American Express Pay It Plan It found that 86 percent of American millennials spent more money on the holidays last year than they’d planned. With the added expenses of travel, food and beverages, entertainment, and holiday gifts, financing the holidays can be challenging, to say the least. Having more available credit could help out.
Before we dive into ways to get more credit, first a word of warning. Paying for the holidays on credit can be a disastrous plan if you won’t have the funds to pay your credit card bills when they come due. It’s one thing to make holiday purchases with a credit card, knowing you’ll be able to pay off these charges in a billing cycle or two, but it’s quite another to make purchases on credit if you don’t anticipate having the funds to pay your bills anytime soon. Doing so could result in paying more in interest, getting further into debt, and even damaging your credit if you’re unable to make at least the minimum payment due each month.
So, before taking any of these steps to potentially get more credit for the holidays, first make sure you have a plan for how you’ll pay down any holiday debt you accumulate.
TIP #1: Pay Down Credit Card Balances
It may seem obvious that paying down the balance owed on a credit card frees up available credit on that card, but this is the one action you have the most control over. Assuming your account balance is not over your credit limit and the account is in good standing, making an on-time payment of at least the minimum amount due should free up some credit—how much depends on the payment amount. But you don’t need to ask anyone’s permission or be approved to get more available credit by paying down balances because a credit card is revolving credit, which means you can continue to make purchases up to your preset credit limit. Again, this is only the case if you’re not over your credit limit and your account is not past due or closed.
Obviously, making only the minimum payment due won’t free up significant credit. But, if you know you’re going to need more credit over the holidays, making a concerted effort to pay down credit card balances prior to the holiday season will provide you with more available credit.
Say that you have a $2,000 credit limit on your card with a $700 outstanding balance in October, and you plan on making $1,500 in holiday purchases with that card. Well, to make your plan happen, you’re going to want to pay down at least $200 of that $700 balance before Black Friday or Cyber Monday or whenever it is you start your holiday shopping.
TIP #2: Request or Accept a Credit Line Increase
Asking your credit card company for a credit line increase is another way to get more credit for the holidays. But, unlike Tip #1, a credit line increase has to be granted to you by the card issuer; you can’t just give yourself one.
The good news is that, if your account is in good standing, you’ve been making consistent on-time payments, and you have a proven track record of demonstrating responsible credit behavior, your card issuer may be amenable to extending you more credit. In fact, some card issuers automatically offer qualifying card members credit line increases—especially around the holidays.
If you’re offered a credit line increase, accepting it is typically just a matter of following the directions outlined in the email, text, or letter informing you that you’re eligible for more credit. If don’t receive an offer for a higher credit limit, you can typically request one online, via your card issuer’s mobile app, or by calling the card issuer and speaking with a customer service representative. The card issuer will consider a number of factors in deciding whether or not to extend you additional credit and should be able to give you an answer quickly.
It’s important to understand that, depending on your credit card issuer, you may or may not be charged a fee for an increased credit limit.
TIP #3: Apply for a New Credit Card
Opening a new credit card account will increase your available credit by the credit limit of that card. So, for example, if you’re approved for a new credit card with a $1,000 credit line at the beginning of November, you’ll have $1,000 in additional credit available for the holidays.
While opening a new credit card gets you additional credit and offers other benefits, it could also adversely affect your credit score. For example, the mere act of applying for a new credit card typically generates what’s known as a hard inquiry, which could lower your credit score by as many as 10 points. Depending on how many credit cards you apply for within a given time frame, these hard inquiries could add up. And it doesn’t matter whether you’re actually approved for the card—hard inquires can lower a credit score regardless of the outcome of your application.
One way to avoid lowering your credit score while shopping for credit cards is to see if you pre-qualify for a credit card before actually applying. Many credit card issuers, Credit One Bank included, allow you to enter some personal information and find out if you pre-qualify for one of their credit cards in a short amount of time—in Credit One Bank’s case, less than a minute. With a pre-qual check, a soft inquiry is generated instead of a hard inquiry, so your credit score isn’t affected. Once you’ve identified a card or cards you’re likely to be approved for, you can then formally apply. This way, only one hard inquiry will be generated instead of multiple hard inquiries.
Just understand that, even if you pre-qualify for a credit card, it’s not a guarantee that you’ll be approved. If a card issuer sees something they don’t like in your application or during a deeper dive into your credit reports via a hard inquiry, you could be declined for their card.
TIP #4: Become an Authorized User on Someone’s Account
If getting a credit line increase or opening a new credit card isn’t an option, being added as an authorized user to an existing account could get you more available credit. It’s also a good option for people too young to legally get a credit card of their own, or for those who can’t get a credit card because of bad credit or little or no credit history.
But there are several things to consider before becoming an authorized user—or adding one—because, depending on how the card issuer reports activity on the account to one or all of the major consumer credit bureaus, your credit could be affected by the primary account holder’s activity. And vice versa.
It may not be an easy task to convince someone to add you as an authorized user to their credit card because they, the primary account holder, are legally responsible for all of your charges. You, as the authorized user, could conceivably leave them on the hook for all of your charges. So, if you decide to go the authorized user route, it’s important to ask someone you trust—and who trusts you—and to make a compelling argument that you will pay them back for your purchases.
TIP #5: Take Out a Loan or Line of Credit
If you’ve exhausted every other option—and borrowing money from family or friends isn’t possible—then taking out a loan or line of credit could help you finance holiday expenditures. Just be sure that, if you go down this road, you have a solid plan to pay back any amount you borrow. All of the previous tips involve unsecured debt, but a loan or line of credit may be unsecured or secured. If it’s secured by collateral, like a home or car, you could actually lose that collateral if you default.
A personal loan is a loan you take out with a lender to help pay for personal expenses, such as financing the holidays. It may be secured or unsecured by collateral, but you typically need to have good credit to be approved for an unsecured personal loan because lending you money without collateral is riskier for the lender. Personal loans are installment credit, meaning you pay a pre-determined amount each month until the loan amount (principal plus interest) is paid in full. Once the loan is paid off, it is closed and you can’t borrow any additional money with that loan.
A line of credit, on the other hand, is revolving credit, like a credit card. It too may be secured or unsecured. With a line of credit, you may borrow money up to a predetermined limit. Just like with a credit card, you make a payment each month on any outstanding balance and, as you pay down the balance, you free up available credit. You may then continue to borrow up to the credit limit for the duration of the draw period, which is how long a line of credit stays open. An example of a secured line of credit is a home equity line of credit (HELOC). A personal line of credit (PLOC) is considered unsecured.
Credit is a valuable commodity during the holidays. By taking steps to acquire more credit during this time of year associated with increased spending, you may be able to enjoy a happier, less-stressful holiday season. So long as you use any additional credit wisely and strategically. By doing so, you hopefully won’t have to formulate a debt-reduction strategy after the holidays.