Can you apply for a credit card and a loan at the same time?

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.

Applying smartly

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:

• personal loans tend to have higher limits, meaning you can borrow more with a loan than you could with several credit cards

• personal loans are quick – you could have the money you need within a week

• credit cards often give perks such as frequent flyer miles or interest-free periods – but if you're looking at a long-term form of credit, you'll often find that the interest rates on loans are lower than on cards

• check all eligibility criteria so you’re not applying for a product that you can’t get

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):

• Creditsavvy (Experian score)

• Credit Simple

• Finder (Experian score)

• Getcreditscore (Equifax score)

• WisrCredit (Equifax and Experian 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:

• make sure you pay off your existing debts promptly – not only does this mean you won't face any late payment fees, it also benefits your credit rating

• only spend within your budget – even if you have a loan or credit card to fall back on, if you spend too much you'll find it a lot harder to make repayments

• if you have multiple debts and you're struggling to keep up, consider a

  debt consolidation loan to put all your debt into one place and make repayments easier to remember and manage

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.