Do Payday Loans Help Or Hurt Your Credit Score?

Can a payday loan actually help your credit score? It’s always widely reported on TV, magazines, and other places that the best way to build or repair credit is to take out a department store credit card, or even a small loan. Where do payday loans fall in with this?

(First, if you aren’t sure of how a payday loan works, check out our writeup to re-aquaint yourself. You may also be interested in our article discussing important facts about payday loans.)

Payday lenders almost never report a loan on a person’s credit report. This can actually be a good thing, because subprime lenders are considered risky and having this on your credit report can look bad to a bank, mortgage, or auto lender.

Another reason a payday loan wouldn’t positively impact a credit score is because they are frequently very short term, from a period of days to months. That isn’t a very long time to build or rebuild credit history.

Paying off a payday loan faster than you are supposed to won’t impact your credit score, either, just like with any other loan. Paying off a payday loan as quick as you can is definitely a good thing, though: you’ll avoid extra fees and interest as a result.

A payday loan or cash advance will only show up on your credit report if you stop making payments, fail to make them on time, and/or go into collections. A collection agency will most definitely report a delinquent loan and this will be reflected (in a bad way!) on your credit report.

It is worth noting that almost all payday lenders do not require a borrower to demonstrate creditworthiness to get a payday loan. A payday lender may check a credit report, but only to see if you qualify for a better rate — not to disqualify a borrower. Payday lenders most commonly need to know if you are currently in bankruptcy, have other payday loans pending/out, and if you receive steady income. Those are the most determinative factors in getting approved for a payday loan.