Can an Online Payday Loan Affect Your Credit Rating?

Payday loans are an essential way to get quick cash when you experience an emergency expense such as a medical bill, auto repair, or other critical expenses that you must pay right away. Payday loans may or may not affect your credit scores. 

Credit Rating

Here is more information to consider.

Credit Scores Are a Summary of Your History as a Borrower

Your credit score is a number that is compiled using your payment history and other factors, and your score can determine how reliable you are as a borrower. Your score is based on your history as a borrower over the past 7-10 years. Your credit reports are compiled by the 3 major credit bureaus: Equifax, TransUnion, and Experian.

Often your credit score is also called a FICO score, which was created by the FICO company. FICO scores are a scale from 300 to 850, with 300 being the worst score and 850 being the best. In most cases, if you have a score of 720 or better, your credit is considered good or very good. A score of 630 or below is considered poor credit.

Your score has 5 different categories; each has more impact on your score. The exact impact is not disclosed. The 5 areas of credit are your payment history, total amounts you owe, length of your credit history, your credit mix, and new credit inquiries.

Payday Loans Come with High Rates and No Credit Check

Payday loans are also called cash advance loans and are small loans for people with bad credit. A normal payday loan is repaid on your next payday but sometimes can be paid during the course of one month. 

Payday loans have high-interest rates but are not intended to be annual or long loans. They are fee-based, and the fees vary depending on your state laws that govern payday loans where you live. 

If you pay back your payday loan on time, the cost is not unreasonable. However, many times payday loan customers have trouble making their payment by the due date. 

Payday lenders almost never do a credit check because they know most customers have bad credit scores. 

Payday Lenders Rarely Check Your Credit or Report Your Payments

With no credit check, payday lenders do not run credit checks or report information to the credit bureaus.

How Can You Build Your Credit?

When you have bad credit, it is difficult to qualify for any kind of loan. Your payment history is the most important part of your credit score. Most people with bad credit scores have missed or been late several times. 
How can you build your credit? Simple. Start making your payments on time. However, a payday loan will not help you improve your credit score.

There are options that can help you get started. 

  • Get a secured credit card that requires a deposit upfront. The secure credit card companies report to the credit bureaus, so making your payments on time will start the process of improving your score. 
  • You should also keep your credit card balance under 20% of the limit, if at all possible. Lowering the percentage you owe on other cards (below the max) will also improve your scores. 
  • Consult online and local government services for free assistance on other ways to improve your scores.

What Are My Risks When Getting a Payday Loan?

All your risks for payday loans are related to repaying the loan on time. If you do not, you could get bank charges, collection agencies after you, and in some states, you can be sued for the loan loss if you default. If you are late, you are charged additional fees and penalties, and they add up fast. A few states allow you to ‘rollover’ your loan, but again, you are charged more fees for this, and it will likely make it more difficult to repay the loan.

What If I Got a Payday Loan But Changed My Mind?

Some states allow you to return the loan in full within 72 hours of getting it, but this varies from state to state. After 72 hours, you cannot change your mind in most states. Check your state website if you want to learn more or call your lender directly to discuss what options they may be able to offer.

What If I Am Struggling to Pay Off My Payday Loan?

Many people find themselves in this position. One thing most people don’t do is to actually track their spending and find ways to use their money more effectively. A simple coffee each morning can add up to $100 a month or more. You can also sell unused items to get additional cash, take on a temp job for extra cash such as delivering groceries or food, and other easy ways to earn more now.

How Do I Consolidate My Payday Loans?

In most states, you cannot consolidate your payday loans into one. However, if you qualify, you can get a larger loan, often called an installment loan, which allows you to pay off high-interest loans and repay the installment one over 6 to 12 months at a lower interest rate. If you have bad credit, it is another way you can start to rebuild your scores.

No matter what, getting a budget in place and getting better at managing your money is key to not using payday loans or other high-interest loans that are too expensive.


Kimmy Burgess

Kimmy Burgess is the Manager of Cash in a Snap, which helps clients get connected to its large network of reputed lenders to get a no fax payday cash advance when they need it. Kimmy has over 20+ years' experience in Administrative Management, with many years in the lending industry. Her expertise includes customer service, client services and other functions in the payday lending business. She has also spent time in the mortgage industry prior to her move into the payday lending field. Kimmy has a number of pets including cats, birds, and a Chinese water dragon.

Category: Online Payday Loan

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