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How Back-to-School Shopping Can Hurt Your Credit Score

Jeanine Skowronski

Parents are no doubt well aware that hasty back-to-school shopping can do serious damage to their bank accounts, but there's another reason to be mindful of how much money those clothes, books, crayons and markers are costing you.

Overspending on supplies could easily wind up hurting your credit score. That's because carrying a high credit card balance will negatively skew what's known as your credit utilization rate.

This rate -- essentially how much debt you are carrying versus how much credit has been extended to you -- is the second most important component of major credit scoring models, including the widely known FICO and VantageScore credit scores. (The most important factor used in score calculations involves whether or not you pay your bills on time.)

For best scoring results, "you do not want your utilization as a whole or on individual accounts to be greater than 30 percent" of the available credit limits, says Rod Griffin, director of public education at credit bureau Experian. "That's the maximum."

Any percent over that threshold will be treated as a sign that you're overextending your finances. For lenders, it's a red flag that you could run into trouble making payments on any or all of your loans down the line, Griffin says.

A Parent's Report Card

To ensure those designer backpacks and expensive scientific calculators don't negatively skew your ratio and send your score tumbling, a few things need to happen. First, you'll want to know how much debt you're carrying on your credit cards, especially if you plan on applying for any loans shortly after your back-to-school shopping is complete.

You can find current balances on your credit report, which you can get each year for free at AnnualCreditReport.com.

Knowing this information will help you determine how much you can afford to charge without going over that important 30 percent threshold -- and it will let you know if a particular card needs to be put on ice.

"Credit card companies don't want to see maxed-out credit cards," says Wayne Sanford, owner of New Start Financial Corp. in Allen, Texas. "They don't want to see you overusing the other money people are lending you."

Also make sure to pay down any card that's bumping up against its credit limit as soon as possible, since that high balance is most certainly already causing your score to suffer.

Shop Smart for a Good Grade

Next, be sure to stay on budget so you can avoid revolving a balance and paying interest on those purchases.

"Ideally, you would be paying your bills in full each month," Griffin says. "The lower your utilization, the better for scores generally."

To keep costs under control, spread school spending out over time. When it comes to clothing, for instance, consumer savings expert Andrea Woroch suggests buying summer clearance items now. Then wait for fall clothing to go on sale.

Similarly, "pop by the [office supply] store every other week so you can get items" as they go on sale, Woroch says. Big-box retailers will offer popular items, such as notebooks or pens, for 50 cents or less, but deals often rotate, she says.

You can also save on school supplies by scouring your kitchen drawers for last year's leftovers, sticking to a list and shopping for supplies during a tax-free weekend.

Paying Before the Due Date

Finally, you'll need to pay off any school-related expenses by your statement's closing date -- as opposed to its due date -- because that's typically when credit card issuers report balances to the three major credit bureaus.

"If they report on the 15th and you always pay you bill on the 15th because it's due on the 16th, then you're going to show the balance [on your credit report]," Sanford says.

Call your issuer to confirm the day that it reports debt, Sanford says. That way, you'll know when you need to pay to avoid having a big balance hurt your score.

Alternately, you can try this trick: Link your credit card to a debit card account and pay off purchases as you go. This helps you stay on budget -- as you'll be constantly aware of how much money is in your bank account -- and ensures a low-to-no balance winds up on your credit report at August and September's end.

An Extra Credit Tip

If you suspect a big credit card bill is unavoidable, there is another course of action you can pursue "to cushion the blow," Sanford says.

Call your issuer, and ask for a credit line increase. A higher credit limit could keep you from going over that 30 percent credit-to-debt ratio.

Issuers are more likely to approve a bump if you've already demonstrated that you are a valuable and responsible customer. Just don't go too crazy and try to get a limit increase for every card in your wallet.

Each request could result in a hard inquiry on your credit report, Griffin says. Plus, all that extra credit could entice you to spend well over your budget.

Jeanine Skowronski is the senior credit card analyst and reporter for Bankrate.com, which provides free credit reports to consumers looking to take charge of their finances at MyBankrate. Jeanine also covers topics such as banks credit card issuers and payment methods.

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