If you think Cyber Criminals are the biggest Risk to your Credit, think again

Every time a major retailer like Target gets hit by cyber criminals, which they did in 2013 during the height of the holiday season, the public’s fear of cyber criminals goes through the roof. It’s understandable considering that the information from more than 70 million Target customers was compromised. Frankly, breaches like these will more than likely continue to happen.

Unfortunately, there’s an even bigger risk to your credit, and that risk is staring back at you every morning when you look in the mirror. If you’re like millions of Americans, it’s you and your holiday spending habits.

The simple fact is that Americans far and wide have a very bad habit of overspending during the holidays and, even though it might bring a few extra smiles on Christmas, Hanukkah or any of the other holidays we celebrate at this time of year, the damage that it can do to your credit the following year (and for a few years after that as well) can be substantial.

Overspending,  debt usage and your credit score

The reason that overspending during the holidays, or any time of year for that matter, can damage your credit score is that debt usage is the second biggest factor that is used when determining said score. Your credit score looks at the amount of debt that you have, including how much you owe on installment loans like automobile loans and your mortgage, and also looks at your “credit utilization”.

Credit utilization is basically the amount of credit that you’re using as opposed to the amount of credit that you actually have. If, for example, you have $10,000 in credit available to you on your various credit cards,  and your credit cards have $5000 in outstanding balances, you’re using 50% of your available credit and thus your credit utilization is 50%.

That’s much too high, especially considering that lenders like to see credit utilization between 10% and 20%, and closer to 10%.

When you first open a new credit card you can actually increase the available credit that you have, which can raise your credit scores slightly. On the other hand, if you use up all of the available credit on that card immediately, and then carry a balance on that card long past the holiday season, it completely defeats the purpose.

Frankly, opening a new credit card for the sole purpose of purchasing gifts for the holidays is one of the biggest mistakes that American consumers make every year.

Financial experts recommend that you shouldn’t charge more money than you can actually pay in full the following month but, in reality, practically everyone does exactly the opposite of that.

In conclusion, while the threat of cyber criminals hacking into your private information is definitely real, it’s not nearly as big a threat as the risk that most consumers take every holiday, which is utilizing far too much of their credit and putting too many expenses on their credit cards.

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