Article by Beth Reeves - 23rd December 2019

Applying For Credit At Christmas

Christmas is known as the season of giving, but it can be easy to go overboard. There are two very important questions you should ask yourself before launching Christmas presents at everyone: ‘How much is this going to cost?’ and ‘What’s in it for me?’ Let’s find out.

The cost of Christmas

Market research group Mintel has predicted that we will spend a collective £47.7 billion celebrating Christmas this year in the UK, a 4% increase from last December. UK consumers spent an average of £567 on Christmas in 2018 - that’s 46% more than the European average, says Deloitte’s 2018 Christmas Survey.

But with the price of Christmas steadily increasing, how are we covering those costs? Well, it appears that many of us rely on credit to help finance a good chunk of the holiday season.

The debt charity StepChange found that:

  • one third of Brits will be using credit to pay for part, or all, of their Christmas spending this year
  • 25% of people will use ‘buy now pay later’ credit this Christmas
  • it will take on average 7 months to pay off their Christmas credit spending

Each year shoppers hop into the spinning cycle of Christmas credit, which leaves them closer to next December before they’ve settled the previous bill. Christmas is clearly a good time for lenders as well as retailers, as budgeting seems to go out the window with demand for costly purchases sky high. Used in the right way though, credit isn’t a bad thing at all.

What will Christmas borrowing mean for your Credit Score?

A history of good repayment behaviour is crucial for a good Credit Score and, just like Father Christmas’s beard, the longer it is, the better. If you can show a long-standing positive repayment history on your Credit Report, then you’re heading in the right direction for a strong Credit Rating.

If you decide to add an extra credit card or loan to your collection this Christmas, the account could contribute positively to your overall Credit Report, providing all payments are made on time and that there isn’t too much debt already on there.

Lenders ultimately want to find customers they believe have the lowest risk of missing payments, and one of the best indicators of how reliable you will be as a borrower is to assess your repayment history. Put simply, the more evidence you have demonstrating good repayment behaviour, the less risk you carry, which means lenders will find you more financially attractive.

The blight before Christmas

It's easy to get carried away during the holidays, but the golden rule of credit should never be forgotten: make sure that everything is paid on time each month, without fail.

Any missed payments will go down as a negative marker on your Credit Report. These adverse entries will harm your overall creditworthiness and even a single late payment can undo months of hard work building it up. Imagine your Credit Score as a Lego house you’ve built brick by brick. Now imagine dropping it on the kitchen floor, with little bricks flying everywhere. That’s a late payment. You can build it back up, but it’ll take time and effort and it’s just a bit of a mess.

Late payments will haunt you for the next six Christmases and make it more difficult to be accepted for credit with other lenders. Even if a lender does accept your application, there’s a chance you’ll be offered a more expensive rate because with negative information recorded against you, you represent a higher perceived risk.

Applying for credit

Whenever you make an application for credit, a Credit Application Search will be added to your Credit Report – this is the ominous ‘credit check’. The Credit Application Search marker on your Credit Report will detail the company you applied with, the date, and your name and address. These search entries aren’t negative markers on their own, but if you have too many in a short period, then they can start to damage your creditworthiness.

An abundance of Credit Application Searches can signal a desperation for credit that many lenders want to avoid. This is important to keep in mind at Christmas time, when applying for credit to spread the cost of the tree, the turkey and the presents can be all too tempting.

How many applications is too many?

There’s no definite limit and this is often an overhyped part of a credit application, but all lenders have unique criteria and consider Credit Application Searches differently. Throughout the year though, one credit application each month is considered average – this number may fluctuate, especially around the holiday season.

It’s worth noting that the outcome of any applications won’t feature on your Credit Report – just the information relating to the search itself. Potential lenders aren’t going to know whether you were accepted or declined for your previous applications just by looking at the Credit Application Searches.

How do I check my Credit Report?

You can see any credit applications on your Credit Report, along with your credit accounts’ repayment history, Court Records and lots more information that will be visible to a potential lender by viewing your Credit Report for yourself.

If you haven’t already, you can check your Multi Agency Credit Report with checkmyfile. It’s free for 30 days, then just £14.99 per month, which you can cancel quickly and easily online, by email, or by freephone. Our Multi Agency Credit Report is the only one in the UK to show your complete information from all four Credit Reference Agencies, so you can be certain you’re seeing everything you need.

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