There are times when we all need a bit of extra cash.
There are times when we all need a bit of extra cash. Whether it's to help pay the bills after the Christmas splurge or because your wedding planning is spinning out of control, there are a few ways to extend your budget.
Two of the most common are credit cards and personal loans. Both can have their benefits, but it's important to make sure you don't over-extend yourself.
When times are tough or you need money urgently, it can be tempting to apply for multiple forms of credit. However, there are reasons why you shouldn't make too many applications at the same time.
The effect of multiple loans/cards
Having multiple loans or credit cards isn't in itself a good or a bad thing, but the way you use them can impact your credit rating (both negatively and positively).
If you make regular repayments and keep up to date with all your debts, this can be beneficial for your credit rating.
However, your combined credit limit could affect your future applications, as you may be offered a smaller loan amount. This is where a personal loan has a benefit over a credit card (or multiple credit cards). Having an end date for your loan and not a rolling credit option can be a big plus.
The effect of multiple applications
Whenever you make an application – whether that's for a loan, a credit card, a mortgage or any other form of credit – it is recorded in your credit history, including whether the application is successful or not.
Each application stays on there for five years. While it's not necessarily a bad thing to have a history of applications, it can have a negative effect if you make multiple applications within a short space of time, as this can make your financial situation look unstable to lenders.
If you get rejected for credit at any point, it's recommended that you wait at least three months before you try again to avoid this.
If you're in need of money, common wisdom says you should only make one application in order to keep your credit rating healthy.
So what finance option should you apply for? That depends on your own personal situation, but some important things to consider are:
Checking your credit rating
It's possible to check your credit rating so you know what information financial organisations are looking at. The government's Moneysmart site recommends the following free tools (with the disclaimer that they may vary slightly in the way that they report your score):
Some tools restrict how often you can get a free report (such as once a year or within 90 days of being rejected for credit), so be careful how you use them.
Keeping your credit rating healthy
As well as making sure you restrict your loan and credit card applications to a safe amount, there are a few other things you can do to help keep your credit rating strong and healthy, which will make applying for loans easier in the future:
To understand and improve your credit score try our Credit Score Bootcamp
We write these articles for you, our Harmoney borrowers, to be, what we hope, are helpful tools. The information is correct at the time of posting and is designed to be a general guide only. As you read, you should consider how - or if - the information might apply to your circumstances, and consider if your needs mean you should seek further advice from an expert in that particular field.