December can feel like a mad dash to the end of the year. There are presents to buy, holiday parties to attend and last-minute tax-saving strategies to put into place.
It’s easy to become distracted and lose track of your money as obligations pile up. However, keeping an eye on your credit score is one way to ensure your finances don’t get away from you.
“Credit is something we utilize constantly,” says Matt Watson, CEO of Origin, a personal finance and wealth management platform.
Credit scores, which are an assessment of how likely you are to pay back a loan on time, can serve as a good barometer of financial health. Many banks, credit card companies and other financial institutions provide customers with access to free credit scores, making it easy to track .
Here are five reasons to keep a close eye on your credit score this holiday season:
1. Credit Scores Can Alert You About Missed Payments
It can be easy to lose track of payment deadlines during the holidays but if you miss a payment, your credit score may help alert you to the oversight.
[READ: The Best Way to Keep Track of Payments and Bills]
Missed payments usually show up on a credit report after 30 days so they won’t be reflected immediately in your credit score. However, your score can help catch bills that may have fallen through the cracks. A reduction in your score is a sign to check your report for possible changes like a late payment.
Many free credit score providers have monitoring tools that automate this process. For instance, credit reporting company Experian offers a free credit monitoring and score service, as does CreditWise from Capital One.
“When you log in, you can set an alert for any changes,” says Michael Foguth, president and founder of Foguth Financial Group in Brighton, Michigan.
2. You May Save Money on Financing
You’ll also want to keep an eye on your credit score because it can directly impact whether you’re able to finance purchases during the holiday season and how much you’ll pay in interest.
“Creditors and people lending out money use these scores to make a lot of different decisions, such as if you can get a (loan for a) car or a home,” says Christopher Fred, head of U.S. credit cards and unsecured lending at TD Bank.
You may not be shopping for a car or a house in December, but you may be hoping to get a new credit card or qualify for a payment plan for another large purchase.
“If you have a low score, you’ll have to pay more to get a loan,” Watson says.
3. Watching Your Score May Keep Spending in Check
If your score begins to drop and you haven’t missed any payments, there’s a good chance that rising account balances are to blame. Credit scores take into account something called your credit utilization rate, or ratio. This refers to the amount you owe compared to the amount of credit you have available.
“That’s an important variable to watch,” according to Fred. “Anything above a third will put a lot more pressure on your credit score.”
In other words, if you have $10,000 of available credit and are carrying a balance in excess of $3,000, it could negatively affect your credit score.
During the holiday season, it can be easy for balances to balloon as you make many purchases in a short period of time. A dropping credit score can be your cue to pause and reconsider any future planned spending.
[READ: 10 Ways to Sidestep Holiday Financial Stress]
4. You’ll Be Motivated to Make Smart Choices
Fred has noticed that young consumers watch their credit scores with the same intensity that some people watch their weight — checking it daily for improvements.
While such careful scrutiny probably is unnecessary, keeping close tabs on your score can encourage smart financial decisions, such as paying bills on time and being selective about borrowing.
However, it’s natural for a credit score to go up and down as purchases and payments are credited to various accounts. So, don’t worry if your score temporarily dips a few points during the month.
5. Identity Thieves Will Be Easier to Spot
Your credit score can also signal if and when your identity has been compromised. For instance, you can set up alerts to be notified whenever a new account is opened in your name. If you didn’t open the account, you can quickly take action.
“I would strongly urge you to freeze your credit at all three bureaus,” Foguth says, referring to the credit reporting agencies Experian, Equifax and TransUnion.
[Related:How to Prevent Credit Card Fraud]
This is something he recommends even if you haven’t noticed any fraudulent activity on your credit report. It’s a proactive step that prevents anyone from accessing your credit and opening new accounts.
“It isn’t hard to unfreeze,” Foguth adds. The process can be completed on credit bureau websites with just a few clicks, and will need to be done whenever you apply for a new loan or credit card.
The holiday season is short, but the damage to your credit can be long if you miss payments, overspend or overlook fraudulent activity. Keep an eye on your credit score to avoid starting the new year on the wrong financial foot.
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5 Reasons to Keep an Eye on Your Credit Score This Holiday Season originally appeared on usnews.com
