Protect Your Credit Score in the New Year: 5 Risks to Avoid

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It pays to be careful in the coming weeks to avoid credit score damage.

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Key points

• Many people overspend during the holidays and damage their credit in the process.
• A drop in your credit score could cause many challenges in the new year, such as difficulty getting approved for a loan.

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With the holidays rapidly approaching, now's the time of year when spending tends to increase. From gifts to travel to lights and decorations, getting into the holiday spirit can be a costly endeavor. Not shockingly, many people wind up in debt in the course of celebrating the season.

Not only can holiday debt be costly, but it can also drag down your credit score. That's not a great thing to do going into the new year. Here's why.

1. You might struggle to get a mortgage

Buying a home may be one of your financial goals for the new year. But if your credit score takes a hit due to holiday spending, you might struggle to get approved for a mortgage in 2022. That could mean missing out on a chance to lock in an affordable interest rate on a home loan.

2. You may have a hard time renting a home

Even though you're not borrowing a large sum of money when you sign a lease to rent a home, you're still promising you'll pay your landlord every month. If your credit score isn't great, a landlord may see you as a risk and worry you won't get your monthly payments in on time. That could prove problematic if you need to move sometime next year.

3. You could get stuck with an expensive auto loan

If you're thinking of buying a new car next year, then the last thing you want is a hit to your credit score. Though it's possible to get an auto loan when your credit is poor, if that's the case, you can count on being charged a higher interest rate to borrow money. The result? More expensive monthly payments that could really force you to limit your spending elsewhere.

4. You might miss out on some great credit card offers

You never know when a great credit card offer might hit your radar. If your credit score dips below favorable territory, you may not qualify for those cards that offer the most cash back, airline miles, or bonus points.

5. You don't need the stress

Seeing your credit score take a dive could cause you a world of stress. You might lose sleep worrying about your credit score hit, and that alone isn't worth it if that hit can be avoided.

How to avoid credit score damage

It's in your best interest to keep your credit score in good shape going into the new year. To do so, stick to a couple of ground rules in the course of your holiday spending:

• Set up a budget before you start shopping so you don't go overboard.
• Don't spend more on your credit cards than you can afford to pay off by the time your bills come due.

A little mindfulness on your part could prevent your credit score from dropping as the year closes out. And that, in turn, could set the stage for a much more financially healthy 2022.

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