Yes, generally a payday lender does report to a credit bureau. Similar to other loans, when you apply or are approved for a payday loan, a mark will appear on your credit file.
Credit bureaus will report four main types of information – whether you pay your loan on time, if it is late, you haven’t paid at all, and whether your loan is in arrears.
In the US there are three main credit bureaus – Equifax, Experian, and TransUnion. A credit bureau receives and sends information from payday lenders in real-time which allows the lender to make accurate decisions bout whether to lend money to someone or not.
Any information that is received by a credit union is compiled and stored in what is called a credit report and shows your credit history. This lets payday lenders know whether the borrower is a trustworthy person who is likely to pay back their loan on time. Every time a lender accesses a credit bureaus database they will pay a small fee for this information. They will then send back any new credit applications they have received – it’s a reciprocal relationship that benefits both sides.
What Is A Credit Bureau?
A credit bureau is an important part of the financial lives of most Americans across the US. A bureau will never make an actual lending decision but instead sell credit scores and credit reports to mortgage lenders, payday lenders, banks, and other creditors.
When a lender decides to work with you or not they will look at your credit score as a key part of the review process of your application. It plays a key part in whether someone will lend you money or extend a line of credit.
A creditor (or lender) typically has to pay for a credit report when they are deciding whether to end or not. Consumers are able to access a free copy of their own report whenever they want by logging in online.
Why Would A Payday Lender Report to A Credit Bureau?
Payday lenders use the information from credit bureaus to make informed decisions but they also send information back to the credit bureaus as they receive it.
Types of information can include:
- Was an application made and was there a hard or soft credit search
- Was a loan installment or repayment paid on time
- Was a loan unpaid and is it now in arrears
- Has a debt collection or arrangement to pay been made
Bureaus hold this information so that they make better lending decisions that won’t come back to bite them. The lender can be fairly certain of a borrower’s financial history and whether they are paying back current debts in a timely manner and whether they are in arrears for any liabilities.
If the borrower is declined for a loan this could be because of their current financial history. This might be frustrating in the short term but is a good opportunity to reassess their financial position and avoid taking out too many loans at once.
What Information Is Held By A Credit Bureau And For How Long?
In most cases, information is held by a credit bureau indefinitely and permanently. However, there are some things that will get removed after a couple of months or years.
Whenever there is a basic inquiry for a loan – like an application – this will usually be removed from your file after a couple of weeks or months. If it is a court order or bankruptcy these could stay on your file for up to 6 years.
If you start to fall behind on any repayments then your credit score will fall. However, if you then make regular and on-time payments consistently over a long period of time then your credit score could improve and get stronger as a result.
A regular question we get is whether paying your payday loan on time will increase your credit score. This is definitely possible but taking out this type of credit product is not a long-term solution to increase your credit rating. It is not advised as a solution to improve your credit score.
What Personal Details Do The Credit Bureaus Have?
Credit bureaus typically hold the following information about each person:
- Full name and address
- Any open or paid financial transactions (including mortgage, loans, cell phone bill,s and payday loans)
- Details of joint accounts
- Credit score and history
- Any recent inquiries to borrow money
