Good Credit vs. Bad Credit: When It Comes to Payday Loans

Credit card debt and payday loans are used by millions of Americans every year. Most people have at least one credit card, and around 12-15 million get a payday loan each year.

Of course, we would all like to have no debt and pay off our credit card balances every month and never apply for a payday loan, but most of us do not understand the difference between good credit and bad credit.

Yes, we all know credit scores are determined based on our payment history, but we often do not fully understand the impact they have over a long period of time.

Good Credit vs Bad Credit

The Benefits of Good Credit

Good credit allows a person to spend money on things that will either be a good investment and will make them money or on things that are a necessity, but often people overspend on. A good example of something that is a necessity is a car. Too many people opt for an expensive car with high payments instead of a reliable, but not so sporty car that is efficient, costs thousands less, and is reliable.

With good credit, your interest rate can be substantially lower and save you thousands of dollars even over a short term auto lease. Repeat this process over 20 years and the savings alone would exceed the average annual salary of most people. Apply this same logic to a home purchase, and savings can easily add up to 2 years’ salary over the term of the home mortgage.

Most people would jump at the chance to add 3 years' salary!

Just be sure your 'good debt' is not more than 1/3 of your monthly income.

Is it possible to be denied for a payday loan even with good credit?

No, it is virtually impossible. Payday loans are primarily for those with bad credit and are based not on credit scores but on your ability to repay the loan. So, someone with solid credit will always get approved. However, there may be unusual circumstances that could cause a denial but extremely rare.

Bad Credit

Bad credit, scores under about 650, put the person in a position of having to "take what you can get" in many circumstances. So that auto purchase with high interest becomes the only way to get the car. Same for a mortgage if you qualify. Same for a credit card. The added costs of bad credit really add up. Everyone should do all they can to improve or restore their credit scores because the savings over a lifetime can be immense.

Payday Loans

With a payday loan, you get an advance on your paycheck deposited into your bank account. The whole process, from application to funding, is usually just one business day. Sounds great, right? Over 12 million Americans get payday loans each year. But you will pay for having that bad credit and having to get such a loan. Fees are regulated by each state and are often at least $15 per $100 borrowed, but can be higher.

Bad credit payday loans should be a last resort, for emergencies only. And, you should be sure you can pay back the loan on the due date (often your next pay date but always within a month of the loan date).

The cost of a payday loan does not change based on your credit score. Because they are fee-based loans, the fees remain the same (within the guidelines of the state you live in), no matter your credit.

Can you improve your credit score once approved for a payday loan?

Actually, you can. The key is to pay back your loan on time, as agreed with your lender. You can even ask them to report it to the credit bureaus. Most lenders will work with you to help restore your credit. More importantly, you need to create a budget, pay your bills on time, and reduce your debt as fast as possible.

Most communities offer free financial advice and even counseling to help people get out of debt, restore their credit, and live within their means. It is so less stressful!


Robin Williams

Robin Williams is the General Manager at CashOne, a reputable financial services company that helps consumers tide over their short-term financial crises. Our fast, convenient, and secure online loan application eliminates the unnecessary hassles or time required to procure payday loans online.

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