Learn whether payday loans impact your credit score and how this loan option can help borrowers with lower credit scores.
If you’re thinking about getting a payday loan or cash advance, then you probably have some important questions like, do cash advances hurt your credit score? Or, do payday loans affect credit scores? It’s important to understand the answers to these questions when considering your financial options.
Payday loans, often referred to as cash advances, offer you the ability to access a small sum of money quickly, with the repayment due on your next paycheck. The convenience of obtaining funds promptly can be a crucial financial lifeline.
As with any form of debt, it’s important to consider all your options and the pros and cons of each potential financial solution. How a loan might impact your credit score is one important variable you should consider.
Do Payday Lenders Check Credit?
Some lenders run some kind of credit check for loan applicants. There are hard credit checks and then there are soft credit checks. This credit check helps the lender verify your information and check your current financial health and ability to take on a loan obligation.
Do Payday Loans Go on Your Credit Report?
All credit inquiries go on your credit history, but only hard credit checks will impact your credit score. So a hard credit check will go on your credit report and impact your credit score. But a soft credit check won’t impact your credit score.
A payday loan may show up on your credit history if the lender decides to run your credit, but that doesn’t necessarily mean it will negatively impact your credit score.
Do Payday Loans Affect Your Credit?
Whether a loan will affect your credit score depends on whether your lender does a hard or soft credit check.
A loan that uses a hard credit check affects your credit score, while a loan that uses a soft credit check doesn’t affect your credit score.
If your payday lender performs a hard credit check, then that loan could affect your credit score. But if your payday lender performs a soft credit check, then that won’t affect your credit score.
Do Payday Loans Hurt Your Credit?
Like any type of loan, a payday loan can hurt your credit score if you don’t make loan payments. If you fail to make payments, default on the loan, or allow the loan to end up in collections, then the lender may report this information to the credit bureaus they used to pull your credit, which could hurt your credit score.
So the short answer to does a cash advance hurt your credit score is that it depends. Whether you are getting a payday loan, a mortgage loan, or a credit card, all types of debts need to be used responsibly in order to not hurt your credit score.
All types of debt, including any type of loan or line of credit, can affect your credit score for better or for worse.
Debt can affect your credit score in a positive way when you make on-time payments and when you have a low credit utilization rate.
Debt can affect your credit score in a negative way when you miss payments, make late payments, or if you have a high credit utilization rate.
Do Payday Loans Build Credit?
Loans can help build your credit score when you make on-time payments and keep your credit utilization rate low. But these loans need to be reported to the major credit bureaus in order to help increase your credit score.
Credit bureaus often use soft credit checks for payday loans, which don’t impact your credit score. This means that if you make on-time payments and successfully complete your payday loan, this information won’t necessarily help increase your credit score.
But you can sometimes request for on-time payments to be reported to credit bureaus if you want your on-time loan payments to potentially help increase your credit score.
Are Payday Loans for Low Credit Scores?
There are subprime loans that usually come with higher rates to counterbalance the lower credit range of subprime loan borrowers and the higher risk involved for lenders.
Payday loans are a type of subprime loan. This means that if you have a low credit score, there’s a possibility you might have an easier time getting approved for a payday loan than some other types of loans.
How to Avoid Negative Impact on Your Credit Score
There are 2 simple things you can do to avoid negatively impacting your credit score whenever you use credit or debt of any kind.
- Keep your credit utilization rate below 30%
- Make on-time payments
You can keep your credit utilization rate low by keeping the amount of your available credit limit that you use to a low number.
You can make sure you always make on-time payments by setting a payment reminder on your calendar or by setting up autopay.
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