Applying or a payday loan will not impact your credit rating.
So the short answer is no, if you’re worried about an application negatively (or positively) impacting your credit score, then don’t worry. If you’re approved or denied for a payday loan it won’t have an impact on your credit history. Payday loans are incredibly common across the US – 12 million Americans take out payday loans every year.
However – if you are accepted for a payday loan but fail to make your payments on time, this could have an impact on your credit score. It could be positive, if you make payments on time, or negative if you consistently miss payments. Below we will cover some of the main aspects to help you understand how your credit score could be impacted.
Key Points
- If you apply for a payday loan it will not impact your credit score in any way.
- If you are accepted for a payday loan then your credit score could be impacted – either positively or negatively
- Payday loans stay on your credit report for about 6 years.
If I Apply For A Payday Loan Will It Affect My Credit?
No is the short answer. There will be no impact on your credit score if you apply for a payday loan. If you are turned down then that is the end of it, the credit bureaus will never know. When we look at your application we will use what is called a soft search. A soft search means that your credit score is unaffected.
Payday loans are not reported to the major credit bureaus in the US and so won’t have an impact. However – before you start the application process it is worth considering whether a payday loan is right for you. Payday loans should only be used for emergencies – when you need to pay a medical emergency or bill. They shouldn’t be used for luxuries like shopping or eating out.
Your credit score will not be impacted for an application.
Will I See A Payday Loan On My Credit Report?
As with any type of loan or financial product, once the loan has been made it will show up on your credit report. The application will not show up, but once you have the money it will be on your credit history. This is worth keeping in mind – once you have a payday loan on file it could stay there for up to 6 years. When you try to borrow money in future, your application will be given more scrutiny because the loan is on there.
If you make your repayments on time every month then your credit score shouldn’t be negatively impacted, in fact, it could even help your credit score.
Will My Loan Repayments Impact My Credit Score?
The simple act of applying for a payday loan won’t impact your credit score, but if you successfully borrow money then your credit rating could be impacted.
There are positives and negatives to this.
Negatives – Missing Your Repayments
Let’s start with the bad news first. If for any reason you miss one or more loan repayments then this could have a negative impact on your credit score. Unfortunately, this is incredibly common with the Consumer Financial Protection Bureau estimating that around 80% of payday loans do not get paid back when they are supposed to.
If you miss payments and the lender has to send your debt to a debt collector this information might be passed on to a credit bureau. If your debt is ‘in collection’ this could negatively impact your score.
In some cases, the payday lender might even take you to court with a lawsuit if your payday remains unpaid. If you then lose the court case this could also show up on your record.
If you think that you will miss a payment then the first step is to let the lender know. They can sometimes help you figure out an alternative repayment plan by either extending the period of the loan or changing other terms and conditions.
The Positive – Making Repayments Could Be Benefit Your Credit Score
The good news however is that if you make your repayments on time this might increase your credit score. This is because if you can prove that you are a prudent and responsible borrower that makes payments on time this will be looked upon favorably by lenders.
This can also increase your chances of being successful in the future for other loans or applications.
Will A Payday Loan Stay On My Credit History?
Any type of loan, borrowing or financial product, whether it’s a mortgage, payday loan, or credit card, will stay on your report for a certain amount of time. Depending on the credit bureau this information could stay on your file for 1 to 2 years.
It is standard practice that when you try to borrow money the lender will search your credit file before making a decision. They could check more than one credit bureau to get a good understanding of your reliability as a lender.
The details that they record are similar and if you take out a payday loan it could show up on your account for up to 6 years after the loan has been paid off.
Can I Get A Loan With Bad Credit History?
Yes – in fact, many of the lenders that we work with are set up to help those with poor or very bad credit histories. They understand that it is difficult to get loans if you have had financial difficulties in the past. At Capital Bean, we want to help those who have had issues in the past with loans. Even if you struggle with a bad credit history we will find a loan that works for you.
There are never any guaranteed loans but we will work hard to try and find a product that works well for you. Don’t worry if you are rejected – the majority (around 80%) of applications are rejected when they first apply.
How Can I Keep My Credit Score High If I Have A Loan?
There are a couple of good habits you can follow to keep your credit score high. This could even help improve your credit rating.
Make Your Repayments On Time
If you are able to make repayments on time and in full then this will greatly help your credit score. It will also show that you are a responsible lender which can help your chances of being accepted in future.
Keep The Number Of Active Payday Loans Low
If you take out multiple payday loans then these will all show on your credit report. This could be a big red flag to other lenders so be careful. If you have more than one loan it could also be a struggle to make the monthly repayments on time. If you make payments on one loan, but struggle on another, this will be a negative mark on your credit history.
Don’t Apply For More Than One Loan At A Time
Even though our application process does not make a mark on your credit history, some lenders do. You need to be careful with this because if you apply for more than one loan at a time and your credit history is marked, you could get in trouble with a bad credit score.
These marks on your report can sometimes take a while to appear but when they do they can impact your ability to get a loan in the future.
