Black Friday is the most anticipated, but potentially dangerous, shopping day of the year. As millions of Americans head out in the wee hours of the morning following traditional Thanksgiving Day festivities, many are unaware of the credit dangers that await them.
Here are a few important Black Friday credit perils you can avoid.
1. Identity Theft
Holiday shoppers aren’t the only ones who anxiously await Black Friday. It is also the optimal playing field for thieves looking for marks among the estimated 37% of adult shoppers who partake in the day’s festivities. Criminals might use easily concealable skimming machines to retrieve data from credit cards. Others may pose as charities, and steal identities by obtaining card numbers or other information that they convince donors to disclose, such as a Social Security number, driver’s license number or bank account information.
Be vigilant about monitoring your accounts. If you must use a credit or debit card, and you notice any suspicious activity, immediately notify your financial institution and the credit bureaus that your identity has been compromised, and shut down your account. You can also monitor your credit score for changes using free tools — like Credit.com’s Credit Report Card, which also gives you an overview of your credit profile.
2. Increased Debt
In-store promotional offers can be irresistible. In an effort to take advantage of what appears to be the deal of a lifetime, many shoppers will go to extreme lengths, even if it means waiting in long lines to secure an item that they can’t afford in the first place. If you pay for it using credit and carry a balance (rather than paying it in full), the debt will continue to pile up — especially if you’re caught in the minimum-payment trap — and you may end up paying more than you bargained for.
3. Store Credit Card Offers
On Black Friday, retailers may try to entice consumers into signing up for a brand spanking new piece of shiny plastic in exchange for a discount on purchases made that day, a free gift or an introductory 0% APR. However, store credit cards carry interest rates (once they revert from an intro APR, if offered) that are higher on average than that of standard credit cards. They can still be a great option for consumers, but if you carry a balance, a credit card with a lower interest rate may be a better choice.
If you apply for a retail card with a 0% introductory offer, maximize the offer and pay the balance in full each month to avoid being inundated with additional debt caused by the interest rate. Since many store credit cards are accompanied by a low credit limit, carrying a balance on the card could lower your credit score as a result of using a higher percentage of your available credit.
Also, carefully examine the fine print to ensure there are no dormancy fees because the card may not be worth it if you do not plan to use it after the initial purchase.
4. Overdraft Fees
If you head out for a morning of Black Friday shopping planning to use debit cards to keep the credit card debt from piling up, kudos to you. However, if you fail to properly budget your available funds, you may be at risk of overdrawing your account. Overdrafts can result in non-sufficient funds fees, which are on average $28 per transaction. Even if you have a connected savings account with sufficient funds to cover the overdraft amount, you may still incur fees.
5. Damage to Credit Score
If you already carry a higher amount of credit card debt before indulging in Black Friday offers, and you charge more than you can pay off in the next cycle (and especially if you max out your credit), you can end up with a drop in your credit scores. Keeping your balances at no more than 20% of your available credit will leave you with healthier credit scores. Applying for new credit around this time will also result in a small, temporary drop in your credit scores.
This is an especially good time of year to start monitoring your credit if you haven’t already. That way you can look out for signs of identity theft, and become more aware of how your spending habits affect your credit. You can get your credit reports for free once a year from the three major credit reporting agencies – check them to make sure there are no unauthorized accounts or erroneous information.
Tips for Facing Black Friday
Searching for ways to avoid the credit dangers of Black Friday?
- Establish a budget that works for you. It should be based on the disposable income you have accumulated throughout the year.
- Plan ahead. Make a shopping list of the items that your spending plan can withstand.
Image: George Doyle