MW Doing your holiday shopping with a credit card? Use these 6 tips to preserve your credit score - and your sanity.

By Genna Contino

'Just because people will lend you money doesn't mean that you need to take it - or that you can afford it,' one consumer-finance expert says

It can be tempting to throw all your holiday purchases on a credit card, but the high-interest debt can lead to stress and regret in the new year. Here's the smart way to use credit cards this holiday season.

Americans will be leaning hard on their credit cards this holiday season. Whether that ends for you with a pile of new high-interest debt or a pile of presents that didn't ruin your financial health depends on whether you understand how to be savvy with your credit cards.

If you've applied for a new card lately, you're far from alone. Credit-card applications were up 10% in September compared with the same month last year, according to credit bureau TransUnion (TRU), and there are early indications that growth has continued in the fourth quarter. Meanwhile, applications to increase credit-card limits hit the highest level since those data have been tracked, according to the Federal Reserve Bank of New York's credit-access survey.

Demand for new credit cards in September came from people across the risk spectrum, a sign that "consumers are seeking new cards both to ensure they have adequate available credit limits to meet their spending needs, as well as to benefit from rewards and offers provided by card issuers to high spenders with strong credit," said Charlie Wise, senior vice president and head of global research and consulting at TransUnion.

The pressure to deliver a picture-perfect holiday is immense, and the financial cost can be steep. This year, the National Retail Federation expects retail sales in November and December to pass $1 trillion for the first time ever. For many people, that spending turns into a debt spiral.

Last year, 36% of Americans took on holiday debt averaging $1,181 per person, according to a LendingTree (TREE) survey. Carrying that debt can be expensive: Of the survey respondents with holiday debt, 42% said the highest interest rate they were paying was 20% or higher. Despite recent rate cuts by the Federal Reserve, annual percentage rates for credit cards remain elevated - the average interest rate is about 24% this month.

The emotional cost of this debt can also be intense. Of those with holiday debt last year, 42% said they regret spending as much as they did and 60% feel stressed about the debt. This year, middle- and lower-income families squeezed by persistent inflation might be especially tempted to rely on debt to get through the holiday season.

Read more: How to tariff-proof your holiday shopping list

There are more ways than ever to finance holiday shopping, from traditional credit cards to buy-now-pay-later loans. But just because you can use a creative way to pay for gifts doesn't mean you should. Experts say it's crucial to be intentional about how you spend and take time to understand the terms of any credit products before signing up.

Here are six tips to keep in mind.

1. Take this step before you apply for a credit-limit increase

Applying for an increase in your credit limit can give you some financial wiggle room, which can be helpful if you are planning to purchase big-ticket items.

But people often overlook one small, crucial step they should take first: updating their salary with their credit-card issuer. Your income doesn't factor into your credit score, but it does affect how much lenders will let you borrow, said Matt Schulz, chief consumer-finance analyst at LendingTree.

"So many people apply for a credit card and keep it for 10 years and never update the information," Schulz said. "Your lender has no way of knowing ... that you're making $20,000 more now than you did 10 years ago."

Read more: Fears about the 'sketchy' economy have Americans turning to secondhand stores for Christmas shopping

While raising your limit can be a smart financial move, experts have a warning: Do not use the increased limit as an excuse to rack up a higher balance.

The primary benefit of a credit-limit increase is its positive impact on your credit-utilization rate, or the ratio of debt to available credit. When you increase your limit but keep your balance the same, you lower this ratio, which can significantly improve your credit score.

Keep in mind that your card issuer could do a hard pull on your credit when deciding whether to extend your limit, according to Schulz, which typically leads to a small, temporary dip in your credit score.

2. Resist the store credit cards - unless you can do this

Forty-three percent of Americans say they're at least somewhat likely to apply for a store credit card this holiday season, Schulz said, the highest level of interest since 2020, while 18% say they are likely to do so.

It can be tempting to apply for a store-branded credit card when checking out, especially if doing so gives you a discount on the purchase you're making that day. But keep in mind that the average interest rate on a store credit card is above 30%, which is "really, really high, even by credit-card terms," Schulz said.

"The fact that so many people are interested in these cards, despite the high interest rates, may tell you a little something about how people are feeling about their financial situation," he said.

Read more: My credit-card APR is 27%. Here's what happened when I asked my bank to lower it.

The high interest rate instantly erases any savings if the card's balance isn't paid off immediately. Some store cards also introduce the risk of deferred interest, which means that if you fail to pay off the entire balance by the end of the promotional period, you are retroactively charged interest dating back to the day of purchase.

Unless you can pay off the balance immediately, it's smart to steer clear of store cards, Schulz said.

"The interest rate is just too high," he said. "You don't have to be a math wizard to understand that paying 30% to save 15% or 20% isn't a great deal."

3. Or use store cards the smart way

To understand how to use these cards wisely, it helps to know that store credit cards generally come in two types: closed-loop and open-loop (or co-branded). The typical card you apply for at the register at the mall is often a closed-loop card, which can only be used at that retailer's stores. However, cards from big-box stores and online retail giants often offer open-loop cards, which are backed by major networks like Visa (V) or Mastercard $(MA)$.

While both types can come with high interest rates, the open-loop versions offer far more flexibility, as they can be used for purchases anywhere that payment network is accepted, and they often provide more valuable rewards.

If you shop frequently at major retailers such as Amazon (AMZN), Target (TGT) or Costco $(COST)$ and you're able to pay your balance each month, it's possible to reap significant discounts or cash-back rewards from their co-branded cards, said Madison Blancaflor, managing editor at the Points Guy, a travel and credit-card comparison site.

"We love a rewards card but would just recommend not impulse signing up for one at the checkout," Blancaflor said. "Plan ahead instead."

Amazon's Prime Visa, for example, offers cash-back rewards for Amazon, Whole Foods and Chase $(JPM)$ Travel purchases, as well as at gas stations and restaurants. Costco's Visa cards offer significant cash-back rewards as well, including 5% cash back for gas purchases at Costco. Interest rates vary but range between 19% and 28%.

Read more: As sales keep falling, Target says bigger stores and AI-assisted styles are its path to salvation

Target's Circle card offers a 5% discount on in-store and online purchases and at Starbucks $(SBUX)$ - but it comes with a 28.7% interest rate.

4. Use statement credits and rewards on the card you already have

If you already have a rewards credit card that offers points or statement credits, look through the list of perks to find opportunities for savings on holiday gifts. A statement credit is money added to your account balance for making specific purchases.

For example, the American Express $(AXP)$ Platinum card offers credits for purchases at retailers like Lululemon $(LULU)$, Saks Fifth Avenue and smart-ring maker Oura. If you don't usually shop at these retailers yourself, you don't have to let these credits go to waste.

Read more: Is the revamped American Express Platinum card worth the $895 fee? This new perk may seal the deal.

"If you've got someone in your life that likes Lululemon or Saks or wants an Oura ring, those are a really easy way to get someone a cool gift without actually paying any money, or at least spending less money out of pocket," Blancaflor said.

5. Consider a card with a cash bonus or a 0% APR period

If you're in the market for a new card, a low-risk way to extend your budget is to choose a card with a cash sign-up bonus, Schulz said. Sign-up bonuses are only awarded after a new cardholder spends a certain amount within a specified time frame, typically three to six months after opening the account.

The strategy is to leverage spending you were already planning to do. For example, a card might offer a $200 cash bonus after the user spends $500 in three months. Instead of putting that $500 in routine expenses on their regular card, the consumer directs that spending to the new bonus card. By using existing cash savings to pay the $500 balance off immediately after hitting the requirement, they earn the $200 bonus risk-free.

There are also cards that charge 0% interest on new purchases for a certain period of time, typically a year to 15 months. These can be a great option for financing large purchases, experts say, giving you a year or more to pay down the debt interest-free.

From the archives (June 2025): You'll have to charge over $75,000 a year on the new Chase Sapphire Reserve card to get the most out of it

MW Doing your holiday shopping with a credit card? Use these 6 tips to preserve your credit score - and your sanity.

By Genna Contino

'Just because people will lend you money doesn't mean that you need to take it - or that you can afford it,' one consumer-finance expert says

It can be tempting to throw all your holiday purchases on a credit card, but the high-interest debt can lead to stress and regret in the new year. Here's the smart way to use credit cards this holiday season.

Americans will be leaning hard on their credit cards this holiday season. Whether that ends for you with a pile of new high-interest debt or a pile of presents that didn't ruin your financial health depends on whether you understand how to be savvy with your credit cards.

If you've applied for a new card lately, you're far from alone. Credit-card applications were up 10% in September compared with the same month last year, according to credit bureau TransUnion (TRU), and there are early indications that growth has continued in the fourth quarter. Meanwhile, applications to increase credit-card limits hit the highest level since those data have been tracked, according to the Federal Reserve Bank of New York's credit-access survey.

Demand for new credit cards in September came from people across the risk spectrum, a sign that "consumers are seeking new cards both to ensure they have adequate available credit limits to meet their spending needs, as well as to benefit from rewards and offers provided by card issuers to high spenders with strong credit," said Charlie Wise, senior vice president and head of global research and consulting at TransUnion.

The pressure to deliver a picture-perfect holiday is immense, and the financial cost can be steep. This year, the National Retail Federation expects retail sales in November and December to pass $1 trillion for the first time ever. For many people, that spending turns into a debt spiral.

Last year, 36% of Americans took on holiday debt averaging $1,181 per person, according to a LendingTree (TREE) survey. Carrying that debt can be expensive: Of the survey respondents with holiday debt, 42% said the highest interest rate they were paying was 20% or higher. Despite recent rate cuts by the Federal Reserve, annual percentage rates for credit cards remain elevated - the average interest rate is about 24% this month.

The emotional cost of this debt can also be intense. Of those with holiday debt last year, 42% said they regret spending as much as they did and 60% feel stressed about the debt. This year, middle- and lower-income families squeezed by persistent inflation might be especially tempted to rely on debt to get through the holiday season.

Read more: How to tariff-proof your holiday shopping list

There are more ways than ever to finance holiday shopping, from traditional credit cards to buy-now-pay-later loans. But just because you can use a creative way to pay for gifts doesn't mean you should. Experts say it's crucial to be intentional about how you spend and take time to understand the terms of any credit products before signing up.

Here are six tips to keep in mind.

1. Take this step before you apply for a credit-limit increase

Applying for an increase in your credit limit can give you some financial wiggle room, which can be helpful if you are planning to purchase big-ticket items.

But people often overlook one small, crucial step they should take first: updating their salary with their credit-card issuer. Your income doesn't factor into your credit score, but it does affect how much lenders will let you borrow, said Matt Schulz, chief consumer-finance analyst at LendingTree.

"So many people apply for a credit card and keep it for 10 years and never update the information," Schulz said. "Your lender has no way of knowing ... that you're making $20,000 more now than you did 10 years ago."

Read more: Fears about the 'sketchy' economy have Americans turning to secondhand stores for Christmas shopping

While raising your limit can be a smart financial move, experts have a warning: Do not use the increased limit as an excuse to rack up a higher balance.

The primary benefit of a credit-limit increase is its positive impact on your credit-utilization rate, or the ratio of debt to available credit. When you increase your limit but keep your balance the same, you lower this ratio, which can significantly improve your credit score.

Keep in mind that your card issuer could do a hard pull on your credit when deciding whether to extend your limit, according to Schulz, which typically leads to a small, temporary dip in your credit score.

2. Resist the store credit cards - unless you can do this

Forty-three percent of Americans say they're at least somewhat likely to apply for a store credit card this holiday season, Schulz said, the highest level of interest since 2020, while 18% say they are likely to do so.

It can be tempting to apply for a store-branded credit card when checking out, especially if doing so gives you a discount on the purchase you're making that day. But keep in mind that the average interest rate on a store credit card is above 30%, which is "really, really high, even by credit-card terms," Schulz said.

"The fact that so many people are interested in these cards, despite the high interest rates, may tell you a little something about how people are feeling about their financial situation," he said.

Read more: My credit-card APR is 27%. Here's what happened when I asked my bank to lower it.

The high interest rate instantly erases any savings if the card's balance isn't paid off immediately. Some store cards also introduce the risk of deferred interest, which means that if you fail to pay off the entire balance by the end of the promotional period, you are retroactively charged interest dating back to the day of purchase.

Unless you can pay off the balance immediately, it's smart to steer clear of store cards, Schulz said.

"The interest rate is just too high," he said. "You don't have to be a math wizard to understand that paying 30% to save 15% or 20% isn't a great deal."

3. Or use store cards the smart way

To understand how to use these cards wisely, it helps to know that store credit cards generally come in two types: closed-loop and open-loop (or co-branded). The typical card you apply for at the register at the mall is often a closed-loop card, which can only be used at that retailer's stores. However, cards from big-box stores and online retail giants often offer open-loop cards, which are backed by major networks like Visa (V) or Mastercard (MA).

While both types can come with high interest rates, the open-loop versions offer far more flexibility, as they can be used for purchases anywhere that payment network is accepted, and they often provide more valuable rewards.

If you shop frequently at major retailers such as Amazon (AMZN), Target (TGT) or Costco (COST) and you're able to pay your balance each month, it's possible to reap significant discounts or cash-back rewards from their co-branded cards, said Madison Blancaflor, managing editor at the Points Guy, a travel and credit-card comparison site.

"We love a rewards card but would just recommend not impulse signing up for one at the checkout," Blancaflor said. "Plan ahead instead."

Amazon's Prime Visa, for example, offers cash-back rewards for Amazon, Whole Foods and Chase (JPM) Travel purchases, as well as at gas stations and restaurants. Costco's Visa cards offer significant cash-back rewards as well, including 5% cash back for gas purchases at Costco. Interest rates vary but range between 19% and 28%.

Read more: As sales keep falling, Target says bigger stores and AI-assisted styles are its path to salvation

Target's Circle card offers a 5% discount on in-store and online purchases and at Starbucks (SBUX) - but it comes with a 28.7% interest rate.

4. Use statement credits and rewards on the card you already have

If you already have a rewards credit card that offers points or statement credits, look through the list of perks to find opportunities for savings on holiday gifts. A statement credit is money added to your account balance for making specific purchases.

For example, the American Express (AXP) Platinum card offers credits for purchases at retailers like Lululemon (LULU), Saks Fifth Avenue and smart-ring maker Oura. If you don't usually shop at these retailers yourself, you don't have to let these credits go to waste.

Read more: Is the revamped American Express Platinum card worth the $895 fee? This new perk may seal the deal.

"If you've got someone in your life that likes Lululemon or Saks or wants an Oura ring, those are a really easy way to get someone a cool gift without actually paying any money, or at least spending less money out of pocket," Blancaflor said.

5. Consider a card with a cash bonus or a 0% APR period

If you're in the market for a new card, a low-risk way to extend your budget is to choose a card with a cash sign-up bonus, Schulz said. Sign-up bonuses are only awarded after a new cardholder spends a certain amount within a specified time frame, typically three to six months after opening the account.

The strategy is to leverage spending you were already planning to do. For example, a card might offer a $200 cash bonus after the user spends $500 in three months. Instead of putting that $500 in routine expenses on their regular card, the consumer directs that spending to the new bonus card. By using existing cash savings to pay the $500 balance off immediately after hitting the requirement, they earn the $200 bonus risk-free.

There are also cards that charge 0% interest on new purchases for a certain period of time, typically a year to 15 months. These can be a great option for financing large purchases, experts say, giving you a year or more to pay down the debt interest-free.

From the archives (June 2025): You'll have to charge over $75,000 a year on the new Chase Sapphire Reserve card to get the most out of it

(MORE TO FOLLOW) Dow Jones Newswires

November 21, 2025 15:10 ET (20:10 GMT)

MW Doing your holiday shopping with a credit -2-

If you know that you can pay off your purchase within the introductory no-interest period, "that can be a phenomenal tool," Blancaflor said, "But whatever the card's specific intro period is, if you don't pay it off between that time, you're stuck with the interest at the end of the line."

6. Approach buy-now-pay-later with caution

If you're wary about opening up a new credit card but still want to pay your holiday shopping bill in installments, you might be tempted by buy-now-pay-later loans, an increasingly common payment option. Also known as "pay-in-four" loans - though loan terms can vary - these typically come with no interest.

Read more: Klarna goes public as more people say buy-now-pay-later is the only way they can afford to buy things

However, the ease of stacking up multiple small loans simultaneously can make the overall debt unwieldy, Schulz said, especially for new or financially strained users. Missing a payment, even by a few days, can trigger a late fee that negates the benefit of the interest-free structure.

The consequences of missing a payment have intensified as data-analytics company FICO $(FICO)$ launched new credit-scoring models in June that incorporate buy-now-pay-later data. This means that repayment behavior, including missed payments, can now directly affect your credit score, raising the financial stakes of falling behind.

"Just because people will lend you money doesn't mean that you need to take it - or that you can afford it," Schulz said.

What personal-finance issues would you like to see covered in MarketWatch? We would like to hear from readers about their financial decisions and money-related questions. You write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.

-Genna Contino

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November 21, 2025 15:10 ET (20:10 GMT)

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