by Ben Sweiry ·
Modified on 20 October, 2023
No, applying for loan will not impact your credit score, unless you are making lots of applications in a short space of time – which could make you look desperate for finance or a victim of fraud.
At Dime Alley, we use a soft-search approach whereby we assess your application without leaving a footprint. If you take out a loan, but fail to keep to your repayment plan, then it could certainly impact your credit score in a negative way.
However, if you are on-time with the repayment of your payday loan, this can actually help your credit score, as it increases your credibility as a reliable and trustworthy applicant.
Key Points
- Applying for a payday loan will not have any impact on your credit score.
- If you cover your repayments in full and on time, payday loans will not have a negative effect on your credit score.
- In fact, payday loans could help you build credit if you repay them on-time and in full, but this is not advised as a long-term solution.
- A payday loan will only show up on your credit history if you are accepted.
Does Applying For a Loan Affect Credit Score?
If you don’t make the expected payments for your payday loan on time this could hurt your credit score. This is why it’s always important to only borrow what you can afford, and ensure that you keep up with repayments on any payday loan you take out.
While failure to repay your payday loan on time (or at all) can lead to significant impacts on your credit score, this score won’t be damaged simply by taking one out. In fact, payday lenders might not even use your credit score to decide on whether or not to offer you a loan. They also might not alert the credit reporting companies about this.
Therefore, you shouldn’t think of credit score as a deterrent to taking out a payday loan, so long as you have a solid repayment plan.
Can A Payday Loan Help My Credit Score?
If you take out a payday loan and make your repayments regularly and on time you can absolutely improve your credit score. Making regular payments and showing banks that you can stick to a repayment plan is a great way to improve your credit score. A payday loan will stay on your credit report for up to six years.
Payday loans companies may also be one option for those who currently have a bad credit score and are looking to improve it, as payday loans are one of the few borrowing options available for people with a poor credit score. However, payday loans are considered quite a high risk way of borrowing money as interest rates are often higher than other loans.
With fairly high interest rates, if you fall behind on payments interest can build up quickly and leave you with a large amount of debt. Large unpaid debts that you are not paying off will have a very negative impact on your credit score and make it seem as though you are not a responsible borrower.
Therefore, you shouldn’t be using payday loans as a method of increasing your credit score.
Do I Need Good Credit To Take Out A Payday Loan?
You do not necessarily need good credit to take out a payday loan.
Whilst a good credit score is typically favourable, as it gives lenders reassurance you’re able to pay off the loan, some lenders are willing to take a view on those with a less than exceptional credit score. Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.
Our partner lenders’ at Dime Alley take a view on a variety of different credit histories, meaning if you have bad credit, you might still be eligible for a loan, subject to further checks.
As long as you meet the following criteria, you will be eligible to apply for a payday loan through Dime Alley:
- You must be over 18 years old.
- You must be a U.S. resident.
- You must have a live checking account (for the payday loan to be sent to if approved).
- You must earn a minimum of $800 (sometimes $500, depending on the lender) per month.
What Can I Do To Improve My Credit Score?
Taking out a loan won’t affect your credit score (unless you are late on the repayments), but there are certainly some easy ways to improve your credit score:
Join The Electoral Register
The electoral register provides a record of your name and personal information. Registering to vote through the electoral register creates an account of your name, address and date of birth which lenders can then use to confirm your identity.
This will help your chances of being approved by a lenders and it will instantly improve your credit score because it confirms your name, date of birth and address. Not to mention, it is free to do!
Don’t Apply For Too Many Credit Loans At Once
If you apply for lots of credit cards or online loans in a short space of time, this could negatively impact your credit score. This is because, to a lender, it makes you look desperate if you are making lots of applications every day. Your applications will be recorded by a credit reference bureau and your credit score will be adjusted to reflect this risk to other lenders too.
Cancel Unused Credit Cards
Having too many credit cards does not look good on your credit score – since lenders think that you have access to a lot of cash and could use it at any point. If you have access to a lot of credit but have a small salary it means that lenders will likely stay clear of you and your credit score could be negatively impacted. So if there are cards that you don’t need, just pay them off or close them altogether.