Payday loans are one of the fastest-growing segments of the lending industry. On average the typical person that uses this type of fast cash loan does it either because they have an immediate emergency, or they have a problem with their credit rating that prevents them from getting more traditional loans. Very often someone who gets untraditional loans either by getting a car at a Buy Here Pay Here lot or a furniture store that essentially allows you to rent the furniture with a final payoff, are accustomed to having these types of loans go unreported on their credit report. Here we will take a look at how payday loans do affect your credit score.
Are Payday Loans Reported to Credit Reporting Agencies?
It is important to understand that although these types of loans can be gotten considerably easier than other types, that they will be reported to the credit reporting agencies. You may have purchased a car from a car dealership that allows you to make weekly payments and found it was not reported on your credit rating. You may have also gotten other types of purchases where you found that they were not reported but this loan will be. It means if you pay poorly, then it will negatively impact your credit report and if you pay it on time it should have some positive effect on your credit report.
The credit reporting agencies hold a report on you with three different sections. These sections include your public credit information, your commercial credit, and your consumer credit information. Payday loans are reported within the consumer credit section of your report. When you make an application to get a payday loan the inquiry will be placed on your credit report. It will indicate what type of loan it is that you’re applying for and if you get it.
It also will show what the terms of the loan are and when you opened the loan and when you are expected to close it. This report will also show what the credit limit was that you’re given, and it will show what your payment history was with the loan. This means if you pay it as you are supposed to then it will rate favorably for you and if you pay it late then it will have a negative impact on your report. The credit agency will also indicate if you’re in default or if you’re overdue on the payment.
What Do Banks Think of Me If They See I’ve Taken Out A Short-Term Payday Loan?
The typical consensus is that if someone has a payday loan and they paid it well, then it shouldn’t negatively impact the bank’s decision on whether or not to give you a loan. The thing is though, that many who use payday loans will often use it repeatedly and this means that each time an application is reported and then the person using those types of loans are seen as being highly active and depending on the loan officer, it may be viewed as though the person is a riskier applicant.
Regardless of whether or not it is a payday loan, credit cards, or other types of loans, the repeated application of loans in a short-term period is seen as negative by most loan officers. According to most loan officers, if someone has received payday loans here and there and paid it off on schedule then it will not have any kind of negative ramifications toward the consideration of a loan with the bank. But if the loan officer feels that the person is borrowing too much or too often then they may be cautious about making a loan to them.
The Two Biggest Mistakes People Make When Taking A Payday Loan That Impacts Their Credit
1. Applying for Multiple Payday Loans in A Short Period Of Time
Because these types of loans are often used in emergency situations there are a lot of people who will go out and try to get several payday loans all within a short period of time. If you’re trying to protect your credit this is a mistake.
2. Failure to Regularly Check Your Credit Information
Every year you’re able to check your credit report for free. There really is no reason not to. It is surprising how often there are mistakes on your credit report and you’ll only know this if you regularly check it.
Payday loans should only be used as a last resort. But if you do use them they don’t have to negatively impact your credit so long as you understand that these loans are reported and so you will need to manage the use of these loans appropriately. Provided you do so, then they will not impact you negatively and they may have a positive impact if you pay the loan back on time.
