Can Payday Loans be Good for Your Credit Score?
A payday loan usually does not show up on the credit records of Trans Union, Experian, and Equifax, three of the major credit reporting agencies. However, it is possible that special credit reporting agencies may collect your payday loan history, and the lenders may consider this when you apply for loans in the future. This is how payday loans affect credit score.
If you do not repay a payday loan, your file may go into the collections process, and a debt collector may report your debt to the major national credit bureaus. This is really the only time that payday loans will impact your credit score. However, if you get a payday loan and repay it on time, you will never have a problem.
Is it possible if I do not repay my payday loan, it will affect my credit score?
It is possible but unlikely it will affect your credit score. Payday lenders do not report to the credit agencies. However, if you default, the chances are that your account will be sent to a collections company, and some of them do report to credit agencies. It is best if you cannot make your payment that you contact your lender immediately, if not before the due date, and ask for a new payment plan.
Many lenders will work with you to modify your payment plan. The lender does have the option to sue you in civil court for the balance of the loan. It is not possible to file criminal charges for payday loan defaults.
What credit score do I need to apply for a payday loan?
There is no minimum score to apply for a payday loan. Of course, a score that is higher increases your odds slightly. But the real key to approval of your loan request is having a steady income. Since payday lenders do not check your credit score, they rely on your income history as a key factor. If you defaulted on previous payday loans, you would likely get approved regardless of your score.
A Few Tips for Building Your Credit Score
You can improve your score by paying your loan and any credit cards or bills you have on a timely basis. This is the most important habit you can form. Prompt payments over time lead to better scores. Check for local agencies and organizations in your area that provide free financial advice if you need help.
Must Read: Good Credit vs. Bad Credit: When It Comes to Payday Loans
Is there a better choice than a payday loan?
There are alternatives to payday loans. Depending on your situation, you may not want to apply for a payday loan but consider some options:
- Installment loan - Installment loans have longer terms and are larger in size. Criteria are stricter for approval, but if you can get approved, it will save you money and give you more time to pay back the loan.
- Credit union advance - If you belong to a credit union, some will provide an advance based on your paycheck history.
- Auto title loan - Some states allow auto title loans. In this situation, you use your car as collateral and get a cash loan. The drawback is if you are late or miss payments, they have the right to repossess your car, and that could put you in a worse situation then you were in. Be cautious when risking the loss of your car for a loan.
Payday loans are not for everyone, but millions of Americans use them every year to handle tough situations and being short some immediate cash. When used correctly, they can be a real lifesaver!
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