Indialends, 22 Nov 2023

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What happens when you apply for multiple cards/loans simultaneously?

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Imagine you are in a situation where you need some funds urgently, and you think of taking the help of the credit options available to you in the market. You applied for a credit card or a personal loan. Suppose it's Friday, and something needs to be done over the weekend, so you are applying for this loan. It generally takes to disburse a loan is 24-48 hours, but because of bank holidays, the loan didn't get disbursed.

You start panicking, and you think of applying for one other loan. That got stuck for similar reasons. And you end up applying for one more credit card. By now, you have 3 hard inquiries on your credit profile, and no card or loan has been disbursed yet. This happens when you apply for multiple credit cards or loans simultaneously.

In this blog, we'll explore the impacts of applying for multiple credit cards at once and guide you in navigating this financial decision.

Hard Inquiries and Credit Score Dip:

When you apply for a credit card/loan, the issuing bank/NBFC/financial institution typically conducts a hard inquiry on your credit report. While a single hard inquiry has minimal impact, multiple inquiries in a short timeframe can temporarily dip your credit score. Lenders may interpret numerous inquiries as a sign of financial distress or irresponsibility.

This is why one should refrain from applying for many credit products in a short timeframe.

Perceived Risk to Lenders:

Simultaneous credit card/loan applications may signal to lenders that you have a sudden and urgent need for credit. This perception can raise concerns about your financial stability, potentially impacting your ability to secure favourable terms or approval.

Potential for Accumulated Outstanding Balances:

With each new credit card/loan, the temptation to spend may increase. Multiple credit cards or loans open the door to higher outstanding balances if spending is not carefully managed. This can further negatively impact your creditworthiness.

Here's what you can do:

Track the Timing of Applications:

Make sure there's some time between 2 applications for your credit card or loan. This is because every time you apply, there is a hard inquiry on your profile. Too many frequent hard inquiries can affect your credit score by a few points (only temporarily).

Quality Over Quantity:

Instead of applying for numerous credit cards/loans immediately, focus on finding one or two cards that align with your financial goals and lifestyle. Analyse your needs before applying for a loan. Consider factors such as interest rates, rewards programs, and other fees and charges to make informed decisions.

Mindful Credit Utilisation:

Be aware of your credit utilisation ratio and the amount of credit you use compared to your total credit limit. Opening multiple credit accounts increases your overall credit limit, but it's essential to avoid excessive spending that could lead to high utilisation. A healthy credit utilisation is 30%.

Responsibly Manage Existing Credit:

Demonstrate responsible credit management with your existing accounts. Make timely payments as they contribute positively to your credit history, helping offset the potential negative impact of new credit inquiries.

While applying multiple credit cards and loans is understandable, it's crucial to consider the application process carefully. By understanding the potential negative impacts and implementing strategic measures, you can navigate it more effectively. Responsible credit management is key to maintaining a healthy credit profile and achieving long-term financial success.