The festive season can be a great opportunity to spend more time with loved ones. But, unless you’ve got secret access to Santa’s bank details, the extra expense of all that eating, drinking and merriment can make a bit of a dent in your finances. But don’t worry, Loqbox is here to help you understand the impact of Christmas on your credit score.

We dive into the questions that might play on your mind at this time of year, like:"Do Christmas holidays affect your credit scores?", "Does your credit score change at Christmas?" and "Does your credit score increase with a Christmas bonus, or salary?" Settle in with a gingerbread latte so that you can get back to feeling festive, instead of worrying about Christmas credit and credit card debt.

What is Christmas debt?

Many of us believe that Christmas is a time for giving. But with presents and decorations to buy, dinners to host, and social occasions to attend, naturally our pockets aren’t as stuffed as the turkey by the time you sit down for Christmas dinner. 

It’s not uncommon for people to spend £100s more in December than they would in a regular month. But not everyone manages to get ahead by saving money for Christmas. So, where is this extra cash going to come from? 

When we borrow money — whether it’s from a credit card or a personal loan — to cover Christmas, it’s often referred to as “Christmas debt”. Borrowing money can be a good way to spread bigger purchases over a longer period of time. But if you spend more than you afford, Christmas debt could take months to repay. 

Why do we get into Christmas debt?

Christmas can be a magical time — full of joy, nostalgia, and just the right amount of mince pies! But, unfortunately, many of us also feel like the only way to enjoy Christmas is to buy more stuff, go shopping, get more premium brand food, and spend on lots of social events. 

When it feels like you don’t have an option but to get involved in everything that’s happening around you, the temptation to spend more than you can afford can feel overwhelming. And financing that can push us into debt on credit cards or with loans.

One way to avoid Christmas debt is to build a budget before you hit the shops. Taking some time to think about what actually matters to you at Christmas — and deciding whether that truly is the presents or the presence — could help you approach seasonal spending more mindfully.  

Does Christmas credit card debt impact your credit score?

The short answer is yes, it can do. Just like at any time of year, Christmas credit card debt can impact your credit score both positively or negatively. Getting on your credit score’s naughty list or not depends on how you manage that debt. Making your payments in full and on time can give you a boost, but there are lots of ways you can hurt your credit score.

Your credit score is a number that lets you know how creditworthy you appear to potential lenders. It’s calculated by the top three credit reference agencies (CRAs) in the UK: Experian, Equifax, and TransUnion. Using credit responsibly helps to build a good credit score and gives you more financial freedom.

If you don’t know your credit score, you can check it for free and without hurting it by using one of these services:

• ClearScore (uses Equifax data)*
• Credit Club (uses Experian data)
• Intuit Credit Karma (uses TransUnion data)

*Transparency is important to us, we choose our partners very carefully, and only present financial products we think will work for you. If you sign up to ClearScore using the above link, then they will pay us commission for this.

Having a good credit score not only helps you to get accepted for lines of credit that you apply for, it can also get you the best deals on interest rates. When it comes to large loans like mortgages, a good interest rate can save you £1,000s in the future. So keeping your credit score in check is crucial. 

It’s easy for our finances to get out of control at Christmas. If you cover the extra festive expenses with your credit card, there are a couple of ways that could impact on the quality of your credit score. For example, if you can’t afford to repay what you owe you could miss your monthly repayments.

Find out more about how missed payments affect your credit score here.

You might open a new credit card to cover Christmas costs. You’ll often be offered festive deals. But remember that providers do hard credit searches when you apply, which temporarily lower your credit score. Applying for multiple lines of credit in a short space of time can also hurt it. Find out more about hard vs soft credit checks here.

You should also consider your credit utilisation rate. That’s the percentage of available credit that you’re using. Keeping your utilisation below 30% of your total available credit will actually benefit your credit score but going over that can hurt it. With the extra spending at Christmas you’re of course in danger of pushing up your utilisation.

Does your credit score increase with a Christmas bonus or salary?

Not directly, no. The Credit Reference Agencies don’t know what your income is, or how much of a bonus you get for Christmas, so these factors won’t affect your credit score directly. But, you can still boost your credit score over the festive season if you’re lucky enough to find yourself with extra cash.

If you get a Christmas bonus, you could treat yourself or your loved ones with festive gifts. But you could also treat your credit score by putting the money towards your loans or credit card debts. As mentioned above, paying off money you owe can reduce your credit utilisation rate and boost your credit score.

You can find out more about your credit report and what it includes here.

How can I grow my credit score after Christmas?

Once the snow has melted on Christmas and you’re starting out into the new year, you might be wondering how to rebuild your credit score after your Christmas debt has dented it. Fortunately, there’s a fast and proven way to boost your credit score. Get started with Loqbox! Full members have grown their credit scores by 300 points in the first three months. It might be your Christmas miracle! 

For  £2.50 per week (less than the price of a cranberry gin fizz), you can grow your credit score. We report your responsible activity to the three main CRAs (Credit Reference Agencies) which can give your credit score a boost. Merry Christmas! 

Improvements to your credit score are not guaranteed.