It’s hard to deny the fact that we all need additional cash flow at times to meet certain types of expenses such as funding the wedding, meeting medical emergency, or sponsoring the educational degree. In fact, due to rising cost of living, people are more dependent on new credit today than ever and thus, shop for new loans and credits more frequently.
Looking at the frequently rising demand of new loans and credits, even the creditors are offering exciting perks to lure the customers. In view of the tempting offers and discounts, people often apply for a credit even if it is not that much needed. However, experts suggest that applying for several new credit accounts in a short span of time indicates greater risk on the credit report, especially if you don’t have longer history. Therefore, it is significant to consider the right time to apply for a new loan otherwise your credit scores could see a dip by huge margin, affecting your overall financial health.
Tips to apply for a new credit:
It’s quite obvious to get attracted towards the exciting new loan and credit offers, but that doesn’t always make a right choice. You need to consider certain factors before applying for a new line of credit, especially when you don’t want any negative marking on your credit scores. So, here are some tips to help you identify whether you’re really in need of applying for a new loan or just getting carried away towards the tempting offers.
Do your research : Just remember that your every minute step could have a huge impact on your credit health and thus, it is of utmost need to do the research work before applying for a fresh credit. It’s good to do a little research to gain understanding of the impact on your credit report. For example, say you’re planning to get a new credit card with exciting reward program, make sure to check whether the offers are claimable for the purchases that you frequently make like groceries and fuel. It is important to note that not all credit cards offer the privileges across the entire segment and thus, have specific cards for specific segments. Therefore, it is essential to identify your needs, do the research and plan your finances accordingly. This one little step will definitely make a huge difference.
Ask if it is a good deal? : Evaluate your needs to the fullest and check if opting for a fresh credit is ideally a good deal or else you are doing fine even without it. You need to check out the offers extended by the lenders to see if they are of your use or not. For instance, you’re not a frequent flyer, but, you opted for a card that offers tempting privileges and perks on booking flight tickets with the specific card. So, are you making a good choice? Definitely not and thus, you need to check on the cards that meet your specific needs and requirements.
Be careful with old accounts : While it is advised to open new credit with utmost care, it is also important to be careful with the existing or old credit accounts. There is a huge connection between your new and old credit accounts, and therefore, you need to be cautious before taking any serious step. It is important to note here that opening a new line of credit doesn’t mean you need to close your other existing accounts. You need to understand that your payment history and credit utilization are the biggest contributing factors to your credit scores. And closing an existing account could lower your available credit limit, ultimately soaring up the credit utilization ratio. On the other hand, closing an old account would show foreclosure in the payment history section and you could end up hurting your credit health.
Sync your timing : Be aware of the timing while getting a new credit. It is important to plan your finances well in advance to figure out when you need a particular loan or credit to meet that specific need. For example, planning for a home loan in next 2 years or getting a car loan this year. This would help you manage the timings for opening a new account, while avoiding to make frequent credit applications. It is significant to understand that whenever you apply for a new loan, the lender does a hard inquiry to determine the creditworthiness. And higher number of hard inquiries in a short span of time could put in credit risk range as the lenders might consider you as credit hungry. Notably, number of inquiries contributes 10% of overall credit scores. Therefore, it is essential to avoid opening multiple accounts all at once, if you really want to be financially healthy.
Types of credit accounts:
Before you make a new credit application, let’s check out the types of credit accounts to manage your finances well.
• Revolving credit – Where the borrower is given a line of credit and has to pay the interest only on the utilized limit such as credit cards and Home Equity Lines of Credit (HELOC).
• Installment credit – It comes with a fixed schedule of repayment against fixed payable amount such as personal loan, car loan, and home loan.