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How to dodge a financial hangover this Christmas

Whether you bagged a bargain on Black Friday or resisted the urge, there's no avoiding the commercial side to Christmas quickly followed by the New Year sales. Here we look at the growing trend of pay-later options being offered to customers at the checkout and what you need to watch out for...

credit score

With the pressure on to spend money this time of year, money experts say using a credit card responsibly can help spread the cost. Using a 0% purchase credit card allows you to pay off your Christmas spend over a few months without paying interest, while a cashback card can actually earn you some rewards for shopping.

But what about deferred payment options offered by an increasing number of stores?

Buy now, pay later?

A swathe of fintech firms, from Klarna, Clearpay, Laybuy and LaterPay, are transforming how and when shoppers part with their cash.

These businesses work with retailers to offer shoppers the chance to delay or spread payment for their shopping without resorting to credit cards or dipping into their overdrafts.

They aren’t new this year but they are growing their reach. Klarna is available on Asos, Peloton, Abercrombie & Fitch, Superdry, Samsung, Topshop and more. And Clearpay can be found in BooHoo, JD Sports Urban Outfitters and most recently Marks and Spencers.

Felicity Hannah, in the Independent recently wrote “What’s on offer varies with different providers, but the cost of the credit is commonly covered by the retailer, to help them secure a sale. That can make it cheaper for shoppers than other pricey credit options.”

Hidden risks?

While it certainly has it’s benefits and gives flexibility, the worry is if you fail to get your reminder to pay later or are unable to pay what you owe at the time it is due, charges could soon mount up and debt collection agency’s get involved. Most notably, late payments can impact your credit score.

If you don’t repay the debt on time there are consequences. Black marks stay on your credit record for six years, so missing a payment on a pair of trainers when you are 18 could end up affecting your chances of getting a mortgage when you’re 24.

Ways to protect your credit score this Christmas

  1. Only apply for a credit card if you know you’ll be accepted. If a lender sees you’ve applied for multiple cards over a short period of time (i.e. if you’re trying to get a credit card to spread the cost of Christmas) you’re going to look a little bit irresponsible and, perhaps even, desperate. Check you’re eligible for the card before applying
  2. Don’t have too many store cards. Let’s be honest, it’s certainly tempting. You’re at the till and the shop assistant offers you the chance to save a hefty amount on today’s purchase if you take out a store card. Again too many credit searches will not go down favourably with lenders. What’s more, if you’re late making a payment the interest you’ll be charged will immediately cancel out any saving you made.
  3. Watch out for scams. Scammers are, unfortunately, not a seasonal occurrence. However, they do tend to be more prevalent at Christmas. And if a scammer gets your financial details, not only can they take your money they can also make applications for credit in your name and damage your credit score in the process. Be careful when shopping online. Credit checking agency ClearScore advises sticking to websites you trust, watching out for emails from big brands that have grammar or spelling mistakes and strange website addresses.
  4. Stay on top of bills. It’s universally accepted that the days in between Christmas and New Year are essentially a no man’s land where time no longer makes sense but it can be easy to lose track of what day it is throughout the entire Christmas period too. Make sure you don’t miss any bills or payments by setting up direct debits wherever possible.
  5. Cut all ties It’s a sad fact that many relationships break down over the Christmas period. In fact, statisticians who studied Facebook posts for a research project found December 11th is the most common day of the year for couples to break up. If you’ve had any finance agreements with an ex-partner, whether a mortgage, a loan or even just shared bills, their credit history can be considered when determining your score. Make sure you inform the credit reference agencies that you’re no longer together by asking for a ‘notice of disassociation’.

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