Tips to Avoid Holiday Debt & Poor Credit Scores

If your holiday shopping isn’t done, you may be about to spend more money than you should on gifts for family and friends. If you are also trying to buy a home, this is the last thing you should do!

Anyone can become victim to the big sales pitches in their inbox, the endless commercials, and just the pressure to get “the perfect gift” for everyone on their list. It makes it all too easy to get out a credit card and just start buying presents. But if you want to buy a home in the new year, you should know that what you add on to your credit card debt now could stop you from buying a home later.

Your debt-to-income ratio is important in the homebuying process, so if you want to qualify for a mortgage, the last thing you should be doing is racking up debt with gift purchases. Also, your credit utilization ratio accounts for almost 30 percent of your credit score. This ratio is the amount of credit you’ve used compared to the total amount of credit you have available on your credit cards. The lower your ratio, the higher your credit score will be.  

Here are a few holiday shopping tips to keep this ratio low – and your score high:

• If you have already applied and been pre-approved for a loan, do not make any large credit purchases. New debt can impact your ability to secure your loan. Just because you got pre-approval doesn’t mean they won’t change their decision if you over spend. A final check on your credit is usually done as a part of the underwriting approval process right before closing.
• Keep shopping simple. Set a budget for holiday shopping, create a list and stick to it - no impulse buying.
• Eat before you go shopping. Adding dinner out at your favorite restaurant every time you work up an appetite while holiday shopping can add up.
• Be transparent about the fact you are watching your budget and are limiting holiday spending until you close. Most people who have bought a home themselves will totally understand the stress and requirements you are under. Letting them know helps set reasonable expectations for gift-giving.
• Get creative with your gifts. Maybe putting together a nice photo book, building a book shelf, or knitting a soft throw blanket is an option. Put your crafty skills to work for you and it could provide meaningful gifts to those you love for less money than you normally would spend.
• Shop for sales and online deals, or pick up in-store to save on shipping. Amazon Prime offers free delivery and holiday savings over the course of several days. Just remember, no impulse buying no matter how great the deal is!

It’s possible to enjoy holiday gift giving while sticking to your home buying budget. Just plan carefully, spend wisely, and keep your eye on the prize - being able to move into a new home.

Click here to read more about qualifying for a mortgage.