by Ben Sweiry ·
Modified on 14 February, 2022
Applying for a payday loan will not have any impact on your credit rating.
Therefore, if you are concerned about how applying for a payday loan could effect your credit score, don’t be! Even if your application is rejected for whatever reason, this won’t be reflected on your credit history. Payday loans are extremely common, with 12 million Americans using them each year.
However, if you do take out a payday loan, you should be aware that when it comes to making the repayments on your loan, this could have an impact on your credit rating, and this could either be positive or negative. This article will aim to improve your understanding of how payday loans could have an affect on your credit rating.
Key Points
- Applying for a payday loan will not affect your credit rating in any way, guaranteed!
- If you are successful in your application, only then will your payday loan show up in your credit history.
- A payday loan could actually help your credit if you meet your repayment plan in-full and on-time!
- Payday loans tend to stay on your credit history for around 6 years.
Will Applying for a Payday Loan Affect my Credit at all?
Fear not, the simple act of applying for a payday loan will not have any impact on your credit rating. When we consider your application, we use a soft search approach, meaning your credit record is unaffected. Payday loans are not reported to any of the major national credit reporting companies, so will not have any impact on your credit scores.
However, before you apply, it is worth considering whether a payday loan is right for you. Payday loans shouldn’t be used for frivolous spending, rather as a way of securing some extra cash to tide you over until your next payday, or in a case of emergency, such as an unexpected bill.
Will A Payday Loan Show Up On My Credit Report?
Just like any other loan product, payday loans will appear on your credit report if you follow through with taking one out. You might find that other lenders give future applications greater scrutiny because you’ve borrowed from a payday lender in the past, but this could impact you positively if you make your repayments on time, which we explain further below. Lenders may view your credit report negatively if it shows you’ve taken out payday loans regularly, which could limit what products and rates they’re willing to offer you.
Can Loan Repayments Impact My Credit Rating?
Whilst simply applying for a payday loan won’t have any impact on your credit rating, if you are successful in your application, this is when an impact on your credit rating could occur.
There’s good news and bad news here;
Bad News – Failing To Meet Your Repayments
Starting with the bad news, if you fail to meet your loan repayments on the agreed upon dates, this could negatively impact your credit score. This is all too common, with the Consumer Financial Protection Bureau claiming that 80% of payday loans don’t get paid back on-time.
If you don’t pay your loan back and your lender sends or sells your payday loan debt to a debt collector, it is possible the debt collector might report this debt to one of the major national credit reporting companies. Debts in collection could hurt your credit scores.
Likewise, some payday lenders bring lawsuits to collect unpaid payday loans. If you lose a court case related to your payday loan, that information could appear on your credit reports and may lower your credit scores.
Therefore, if you know that you’ll struggle to meet your repayments on-time, be sure to contact your lender immediately, as they may be able to sort some alternative plan which doesn’t effect your credit score.
Good News – Meeting Your Repayments On Time
However, the good news is that if you are on-time with all of your loan repayments and demonstrate good financial habits, your credit score could improve. This is because managing loans properly over time proves you can stick to the terms of a loan and shows lenders that you are a reliable borrower.
Additionally, this can further increase your chances of being accepted for financial products in future applications.
How Long Will A Payday Loan Stay On My Credit History For?
Whatever the type of loan product you use, whether it is a, payday loan, mortgage or credit card, it stays on your credit report between one and two years, depending on the credit reference agency.
Whenever you apply to borrow money, lenders will search your credit report before they offer you a loan. They then use different credit reference agencies to check your details, with different scoring systems in place across them all. But the details they record are similar and your payday loan could show on your credit report for up to 6 years after your account has been paid off.
Can I Get A Loan With A Poor Credit History?
Yes, you can! Many lenders and brokers prioritise borrowers who have had rocky financial histories, as they understand how challenging obtaining a loan can be. At Dime Alley, this is our attitude. We aim to help all borrowers in their hour of need. We consider all applicants, no matter their credit histories, which means that even if you have a low credit score, we will do our best to find the best loan for you.
Whilst there is no guarantee that your application will be accepted, we will do our best to match you with a lender to suit your personal needs. Even if you are rejected, don’t be alarmed – statistics show that up to 80% of applications are rejected first-time around!
How Can I Maintain A Good Credit Score If I Have A Loan?
There are several ways in which you can maintain a good credit score whilst taking out a loan, and perhaps even improve your credit rating.
Make Repayments In Full And On Time
As mentioned above, if you are able to repay your loan back on the agreed upon date, this could, in fact, positively impact your credit rating. It could also make you a more favourable candidate for future loan products.
Don’t Take Out Too Many Payday Loans At Once
Taking out lots of payday loans will appear on your credit report, which could act as a red flag to other lenders. Plus, if you take out multiple loans at once, you may find your repayments become more challenging, especially given the attached interest which you need to pay back.
Don’t Make More Than One Application At A Time
While our application review system does not mark your credit history, not all lenders utilise this approach. Sometimes, when lenders access your history as part of their application review, this becomes a visible mark that other lenders can see when they, in turn, view your record.
While these can take a while to appear, lenders may be unwilling to lend money to consumers who are seeking loans left, right and center.