What Is Credit Hunger And Why It Matters for Your Credit Score

The use of credit vis-à-vis credit cards and personal loans has become commonplace. Such sources of credit are being used to cover regular expenses, achieve financial objectives and handle unexpected situations. While on one hand using credit properly can provide financial flexibility, on the other hand, misusing loans or credit cards can raise red flags for lenders. The overuse of credit in a short span is likely to reflect a pattern which indicates ‘credit hunger’.

What Is Credit Hunger?

Credit hunger refers to the frequent or repeated attempts to apply for loans or credit cards within a short period of time. This behaviour can signal financial stress or over-dependence on borrowed funds, which may negatively impact an individual’s credit score.

Why Lenders See Frequent Credit Applications as a Red Flag

Lenders view multiple credit applications in a short period as a warning sign. For the lender, such applications indicate that the borrower is facing financial issues or confusion regarding the management of existing debts. Lenders may become cautious in approving loans or credit cards for borrowers who regularly apply for new lines of credit because such borrowers are prone to default on their debts. Additionally, many applications for credit suggest instability, which can also reduce a lender’s confidence in the borrower’s ability to repay the amount they have borrowed.

How Credit Hunger Affects Your Credit Score

Every time you apply for a loan or credit card, the lender conducts a hard inquiry on your credit report to assess your creditworthiness. While one or two enquiries may not do much harm, multiple applications in a short span raise red flags.

These frequent hard enquiries can gradually lower your credit score, making it harder for you to qualify for loans in the future. Despite the loan getting approved, lenders may impose stricter repayment terms or higher interest rates for such borrowers. As a consequence of continuous borrowing, individuals may eventually find themselves stuck in a debt trap with reduced financial flexibility.

How to Avoid Credit Hunger

To keep a healthy credit profile, you must be cautious of how and when you apply for credit. Here are a few ways to avoid falling into the trap of credit hunger:

Apply only when necessary: Avoid multiple credit applications in a short time. Apply only when needed, and wait a few months before making another request.

Track your credit score regularly: Monitoring your score helps you stay aware of how your borrowing behaviour affects your credit profile and lets you address issues early.

Use credit wisely: try not to use more than 30 per cent of your credit limit. This shows responsible use of credit and demonstrates to lenders that you can manage credit efficiently.

Build an emergency fund: By setting aside money for emergencies, individuals can reduce their reliance on credit when there are unanticipated costs or income shortages.