Do Payday Loans Affect Your Credit Score?

This is a short-term, unsecured loan that helps you handle your small, unexpected expenses while awaiting your salary. This type of loan, although easy to avail of, can also have a higher interest rate than other forms of credit products. To apply for a payday loan, you should be at least 21 years old.

Whether your loan will get approved or not will depend on your credit score and credit history. Usually, the lower the credit score, the less the chances of your payday loan getting approved. Keep in mind that even if you get a payday loan in such a situation, the chances are that you will be charged a higher interest rate.

But does a payday loan further hurt your credit score? Let’s find out!

Does Payday Loan Hurt Your Credit Score?

So if you pay back your payday loan on time, your credit score does not get significantly impacted. In fact, your payday loan can be of great help in rebuilding your credit if you pay back the loan as per the agreed terms and conditions.

However, there are some exceptions to it. For instance, if a particular company views payday loans negatively (as these loans may show you as a less reliable borrower), getting a payday loan can harm your credit score.

Your payday loan can affect your credit score even when it comes to credit inquiries. A credit inquiry for a payday loan could be different from other types of credit applications. Several lending institutions may not approve your loan application if they see multiple payday loan inquiries on your credit report.

Does Payday Loan Show on Your Credit Report?

Like other credit products, payday loans will appear on your credit report. Your future lenders will see it negatively if you have taken out payday loans regularly. This, as you may guess, will eventually limit the kind of credit products that you will get and the interest rate offered.

How Long Does Payday Loan Stay on Your Credit Report?

No matter which type of loan or credit you apply for - be it a home loan, credit card, or payday loan - it will stay on your credit report for one to two years. When you apply for a loan or a credit card, the lending institution or the bank will browse through your credit report.

What are the Alternatives to Payday Loans?

There are several alternatives to payday loans, with the major ones including the following -

• Salary Advance - If feasible, you can request your employer for a paycheck advance. As this credit is an advance rather than a loan. the company would not need to check your credit history for the same.
• Bank Cash Advance - Several credit unions and financial institutions provide cash advance facilities or overdraft protection that could make for a great alternative to payday loans.

Key Takeaways

• A payday loan is an unsecured loan that enables you to cover minor emergencies while waiting for your paycheck. Although this type of loan is simple to obtain, the interest rate may be greater than with other credit products. 
• You must be at least 21 years old to apply for a payday loan.
• When you repay your payday loan on time, it has little to no effect on your credit score. When you repay your payday loan in accordance with the terms and circumstances set forth, it may aid in your credit recovery. There are a few exceptions to it, though.
• Even when it comes to credit queries, your payday loan may have an impact on your credit score. A credit check for a payday loan might not be like other credit applications. If lenders detect several payday loan queries on your credit report, they may choose not to approve your loan application.
• Whether you apply for a payday loan, credit card, or home loan, the information will remain on your credit report for one to two years.
• You can opt for a salary advance or bank cash advance if you don't want to get a payday loan in order to keep your credit score high.

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