Holiday shopping in the new credit environment

John, I'm wondering how my holiday shopping will impact my credit this year given what's going on in the economy. Should I avoid anything?

Sonya Dickens
Chicago, IL

Sonya,
First off I'm impressed that you are thinking that way. I guess with what's going on in the credit world right now we're forced to care more about our credit than ever before.

Here are some things to keep in mind as we make our way into 2009.

1. Any new debt that you take on in December won't show up on your credit reports until at least February of 2009 because of how infrequently your credit reports are updated. This means that if you do something damaging that involves debt, you won't have a lot of options to remedy the situation until then. Even if you pay them off after the first statement period, the debt will take time to be updated.
2. Credit card debt and retail card debt will still has the same negative impact to your FICO scores as it does during any other time of the year. The difference is that lenders are now requiring higher scores to get the best deals, so even modest score damage could be very costly.
3. I'd avoid opening any new retail cards just to take advantage of the discount offers. I believe more people will be declined at the register than ever before, and the damage of the credit inquiry will still take place.

Start thinking about a New Year's resolution now rather than in January. Here are some suggestions:

1. Reset your FICO score goals for 2009 — If you were shooting for 700 in 2009, then shoot for 800. 700 simply isn't good enough any longer.
2. If your FICO scores are already great (750+) — I'd suggest optimizing your current credit position in case rainy days are in your future. If you don't have at least 5 credit cards and $100,000 of available credit then make that a goal too. This can include retails store cards and any other credit cards issued by banks or credit unions. Having this amount of available credit ensures that you won't hurt your scores by “spiking” your credit card debt. Getting there may temporarily lower your scores, but it's a better place to be long term.
3. Don't do anything stupid — Don't borrow against your 401K, stop hiring people to settle accounts for you, and stop avoiding your creditors. Ask for help! Find a non-profit and reputable credit counselor at www.nfcc.org.

As always, I'm here to help. If you want to reach me you can do so at AskJohn@credit.com

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