There’s an old school myth that having credit cards and using them around tax time is somehow a negative thing. It doesn’t really matter what time of year it is. Be it tax time or Christmas time, if you have opened too many lines of credit you’re going to have more debt than your income is probably bringing in currently. No one really knows where it all started, but in truth if you are a responsible individual with self-discipline your credit will be fine. It’s the mindset that you’ll be getting lots of money back on your tax return that really gets people into trouble. That’s why it’s so important to have a professional fill out your tax forms for you.
Carrying a Balance is a Good Thing
People who carry multiple lines of credit suffer from the assumption that carrying a balance on each card is a good thing and that creditors will see these balances as a positive step toward improving or maintaining credit. This is simply not true. Carrying a high balance on multiple credit cards can injure your credit score because lenders will see this as irresponsible behavior. On the other hand if you carry a number of cards with a low balance then you are simply throwing out your money by paying only interest to the lender which doesn’t help your credit card score at all.
Opening a New Card Will Damage Your Credit Score
The only time that opening new credit cards can possibly damage your credit score is if you assume the money you’re getting back at tax time is more than enough to cover your expenditures on those new lines of credit. For example if you think you’re going to receive $3000 back from your tax return and then you open up 3 new credit cards that each have $1000 on them which you then proceed to max out before you actually get your tax return…and then find out you only get back $1500 then you’ve just hurt yourself pretty badly.
By itself, credit cards can’t hurt you during tax time. Opening up new lines of credit can’t really even hurt you because your score will only drop about five points per card. Unless your credit score is teetering between poor and fair credit you really have nothing to worry about. So go ahead and charge your way into tax time. Just do so with a little self-restraint so that you don’t end up digging yourself into debt to start off the new year.
