Yes, payday lenders report to credit bureaus. Just like any other borrowing, payday loans will appear on your credit report.
Payday loans companies report information from your loan to credit bureaus including whether your loan has been paid on time, if you were late repaying or did not pay at all and your loan is in arrears.
The main three credit bureaus in the US are TransUnion, Equifax, and Experian. These bureaus receive and relay any information from payday lenders in real-time and this allows future lenders and creditors for all kinds of financial products to share and have access to information and make informed lending decisions.
Any information helps other future companies know if you are a good or potentially bad person to lend to or borrow money from. Payday lenders pay a small fee to access information from bureaus as part of their credit checks – and they send back the information so it is ‘reciprocal’.
What is a Credit Bureau and How Do They Operate?
Credit bureaus play an important part in the financial lives of millions of Americans. Whilst bureaus don’t actually make lending decisions, they sell credit reports and credit scores to banks, mortgage lenders, credit card issuers and other types of creditors.
These creditors typically consider your credit reports and scores as part of the review process before approving your loan or credit card application.
Creditors generally have to purchase consumer credit reports when they’re making a lending decision, but consumers can get free copies of their own credit reports at any time.
The three major consumer credit bureaus are TransUnion, Equifax and Experian, and creditors, like banks, payday lenders and credit card companies, use these bureaus’ consumer credit reports to help them determine the risk involved in lending money to regular people.
Why Do Payday Lenders Report to Credit Bureaus?
Whilst payday loan companies receive information from credit bureaus, they also send information back as they receive it.
This information can include;
- Whether an application was made and if there was a soft or hard credit search;
- Whether a loan repayment or installment was paid on time;
- Whether a loan was not repaid and is now in arrears;
- Whether an arrangement to pay or debt collection plan has been arranged.
The main reason that bureaus hold this information is to help make better informed lending decisions for all of those involved. For a lender, they can access any information in real-time and see if a customer has repaid their recent debts or time and if they are in arrears, the lender knows to avoid offering any further finance or credit.
For the borrower who is struggling to keep up with existing payments, they may be declined a loan initially, but this may be a good thing since they will not be given too many loans or additional finance that they cannot afford to repay.
Do Payday Loans Go On Your Credit?
Most information is held by credit bureaus permanently, but there are some things that get removed after a few months or years.
Any inquiries for a loan, like a basic application, typically get removed after a few weeks or months. For things like court orders and bankruptcy, these may stay on file for as long as 6 years.
If you fall behind on your loan repayments, your credit score will fall, but if you regularly make payments on time, consistently, over a long period, your credit score will improve and can get very strong as a result.
In fact, some people often ask if repaying your payday loan on time can boost your credit score. And whilst this is possible and your score can improve, taking out high cost credit is not a long term solution or advised as a way to boost your credit rating.
What Personal Information is Held?
- Your full name and home or business address;
- Any paid or open financial transactions (including credit cards, loans, mortgages, cell phone and utility bills);
- Any joint accounts or people you are financially linked with;
- Your credit score and financial history such as bankruptcies, arrears or court orders;
- Any recent loan enquiries.
Do Payday Lenders Check Your Credit?
Yes, payday lenders will need to run a credit check on you before approving your loan application. This is in order to check your eligibility, what rates they can offer you and the likelihood of you being able to repay your loan on-time and in full.
However, at Dime Alley, we don’t conduct hard credit checks – we only run a soft credit check which won’t affect your credit score and won’t leave a footprint either.