A credit card is a handy piece of plastic to have. It’s a safety net of money you can access whenever you need more than what’s in your wallet. As long as you pay back what you use, you can tap into these funds on an ongoing basis.
Each card comes with unique perks (such as cashback bonuses or store discounts), and they off purchase protections for online shopping. So it makes sense to apply for more than one.
Unfortunately, you may not be approved for the next card you apply for online. Keep scrolling to find out why, and what you can do instead.
Credit-Card Issuers Are Tightening Their Criteria
The 2023 banking crisis — in which three US banks have failed so far — has poured gasoline on an already raging economic fire. Economists think this will push the US into a recession faster than anticipated.
With such a gloomy look at the months ahead, experts believe credit-card issuers will tighten their lending standards to protect themselves from risk.
What do tightening lending standards look like? It results in a credit crunch that may throw up these roadblocks:
- Old, inactive accounts may be closed.
- Credit limits might shrink, meaning you’ll be approved fewer funds.
- New cards may come with higher APRs than previous offers.
Eventually, however, you may even be denied a credit card when just last year you would have received approval right away.
What Happens if You Need Credit in an Emergency?
A credit card isn’t the only way to handle unexpected expenses when you’re short on cash. Online loans provide safety nets in emergency situations you can’t foresee. If you’re denied a card, you can apply for your next loan online to see if you have better luck.
Online loans include installment loans and lines of credit. A line of credit works much like a credit card in that you’ll be approved a limit that you may choose to draw against as you wish. Like the plastic in your wallet, you’ll only have to pay back what you use. And, as long as you pay off what you use, you may draw against this limit again.
An installment loan is a term product. This means you’ll receive your approved funds upfront, and you’ll be expected to pay back your full loan amount over a series of payments.
Depending on the nature of your emergency, one of these online loans may be better than the other.
Are Online Loans a Perfect One-for-One Replacement?
While online loans may be an option in an emergency, they aren’t a perfect mirror of the plastic in your wallet. Most online loans don’t come with cashback rewards or other perks. They may also come with higher APRs depending on your financial situation and lender.
Legitimate online loan companies never recommend taking these financing products shopping as a result. These loans are not designed for recurring bills or splurge spending, so consider them a last-resort option.
Keep this in mind if the next application gets denied. Sometimes, rejection is a sign you need to reconsider your approach to finances. For emergencies, online loans may offer alternative assistance during the credit crunch. Otherwise, see how you can budget for your next purchase instead.