Credit use is on lender's radar

The effects of taking out a single payday loan may affect your ability to go to every lenderThe effects of taking out a single payday loan may affect your ability to go to every lender
The effects of taking out a single payday loan may affect your ability to go to every lender

Payday loans are often called upon when times are tough and people are having difficulty making ends meet.

Over the past few years the drawbacks and pitfalls have become more well known: from the sometimes astronomical interest rates to the way it looks on your credit file. The effects of taking out a single payday loan may affect your ability to go to every lender.

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However, it probably won’t, in itself, restrict your ability to get a mortgage, as it is your whole credit profile which is scrutinised by lenders.

Similar to this a subject which is cropping up more and more at the moment, is cash advances on your credit card.

Before I go into this, when I say cash advances I am referring to withdrawing cash from a cash machine on your credit card.

Like everything lenders take a look at the much bigger picture. They look out for patterns in your credit file. If they see you have taken one cash advance, generally speaking it’s unlikely to affect you too much in terms of applying for a mortgage.

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However, if you have taken out multiple cash advances, every month for the past year, alarm bells may then start to ring for lenders as it may indicate that you are living above your means or are in a period of financial distress.

So, as well as potentially affecting you credit profile, there are other pitfalls and drawbacks to be aware of before taking cash advances.

A cash withdrawal typically incurs an initial fee as a percentage of the withdrawal amount, unusually with a minimum amount too.

They also generally fall outside the promotions that you may have, you will usually start paying a high interest rate straight away.

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It should also be noted that cash advances typically have higher interest rates associated rather than if you were to buy something using your credit card directly.

Finally, I just want to briefly touch on credit cards, if you regularly use your credit card and only pay the minimum payment, you need to be wary that your balance doesn’t get unmanageable.