Payday Loans And Your Credit Score

Despite the high interest rate and borrowing costs, payday loans are attractive to so many borrowers because they don’t have as rigorous of an approval process as regular loans. In fact, all you usually need to get a payday loan is your driver’s license, a recent paystub, and a blank check. Since there are no credit checks, you can get a payday loan no matter what type of credit score you have or what negative items may be present on your credit report.

Another reason payday loans are also attractive is that they’re not generally reported to the credit bureaus, at least not the major credit bureaus Equifax, Experian, and TransUnion. That means your credit score won’t be affected by the fact that you took out a payday loan and the credit bureaus won’t be notified immediately if you’re a few days late on your payday loan payment.

There is an exception, however. If you default on your payday loan, the lender or a collection agency will probably report the debt to the credit bureaus. Default happens after you’ve missed several payments and the loan has been outstanding for several periods. The number of missed payments may vary depending in your state and the lender, but you can always ask if you’re wondering. Once the defaulted payday loan is listed on your credit report, that’s when it will affect your credit score. The better your credit score, the more points you stand to lose.

The bad thing is that once the defaulted payday loan is on your credit report, you can’t erase the record just by paying off the loan. While your credit report will be updated to show that you paid the loan, the fact that you defaulted will remain for seven years. If you want to keep a payday loan off your credit report and keep it from affecting your credit score, you must pay it back according to the terms of your loans. The lender may be willing to set up a payment arrangement if you can’t pay the loan in full all at once, but you’ll need to ask if this option is available.

Even if you can pay back a payday loan on time, your credit score may not necessarily be safe. Consider how your financial situation is affecting bills that are reported to the credit bureaus. It stands to reason that you’re having some financial difficultly, hence why you’re taking out a payday loan in the first place. If you don’t correct your finances, things could get worse. Your bills could become past due and that will certainly hurt your credit score, even if you pay the payday loan on time.

Done right (if there is a such thing), a payday loan won’t hurt your credit score. However, before you borrow, realize that payday loans are one of the most expensive types of loans on the market. It’s easy to get caught in a borrowing trap where you rollover the loan several times and pay hundreds of dollars in fees. Before you take out a payday loan, exhaust all your other options.