Do Payday Loans Affect Your Credit Rating

Do Payday Loans Affect Your Credit Rating?

Protecting your credit score is a big deal – especially if you’ve worked hard in managing your finances and building your rating. One of the biggest questions when it comes to payday loans online is whether or not such can affect a person’s credit rating.

Now, why such a question? Well, a negative credit score can leave you facing several other problems – including struggling to obtain future credit. Furthermore, obtaining a personal loan online, financing an engagement ring, getting a car loan and even requesting a bank overdraft with bad credit can all become difficult if dealing with a poor credit rating.

Do All Lenders Verify Credit Score?

If you are dealing with a regulated lender, chances are they’re going to verify your credit score. In general, this is either completed through a “soft credit check” which doesn’t affect credit score or a “hard credit check” which, on the other hand, leave a mark on your rating. In other words, a soft check gives a lender a good idea about the risks in lending money to you while a hard check provides a definite answer.

Do Payday Loans Online affect Credit Score?

Although we often talk about Égood” or “bad” credit scores, a credit rating is in fact much more complex. Overall, your credit score is based on your personal financial history and experiences. In other words, it is actually possible to have a negative credit rating simply because you haven’t had the opportunity to use credit just yet. This is often a situation faced by young applicants who have not yet had the time to prove their creditworthiness through debt and expenses.

You can also improve your credit score by a reasonable amount if you continuously make minimum payments alone. This occurs because you become an attractive prospect to lenders: You pay interest on borrowed money while continuing to meet your financial responsibilities.

Negative Effects of Payday Loans on Credit Ratings

Missed payments and defaults, otherwise known as missing a payment on a payday loan, causes the biggest negative impact on your credit score.

First of all, as with all debts and financial commitments, missing a payment negatively demonstrates your ability to responsibly and effectively manage your financial commitments. More so, missing payments can also indicate financial problems, causing harm to future scheduled payments as well.

Not paying your payday loan online back, whether by choice or because you can’t afford it, the negative marks on your credit report will quickly add up. Such marks, or defaults, remain on your credit file for at least six years, starting from their issue date. In other words, not repaying a payday loan online can affect how lenders evaluate your creditworthiness for over half a decade.

Keep in mind though, that is situation doesn’t uniquely apply to payday loans online.

Does the Application Process have an Impact on your Credit File?

Generally speaking, if a lender performs a soft credit check in order to evaluate your application, then no, such a verification will not directly affect your credit score like the hard check would. However, remember that a soft credit check is still marked on your credit report.

According to Experian, it is actually possible to have numerous soft credit checks on your report and such still wouldn’t have an impact on your credit file. This is because soft credit checks are not visible to other companies and therefore, don’t send out any indication of how many applications you may have already made.

On the other hand, a hard check remains on one’s file for up to 12 months and is completely visible to other credit providers or companies in the future who may equally perform their own verification.

In most cases, one application for a payday loan online, at the maximum two, is generally understandable. However, if you’re applying with several payday loan lenders then the marks on your credit score will quickly add up. Upon your next application, the potential lender will take note of the application trail and consider you of higher risk due to your numerous loan applications.

Aside from indicating to potential payday lenders that you are at risk and in desperate need of a financial loan, multiple applications can also indicate that other lenders have rejected your request. In other words, as a lender, it would be much more difficult to offer a financial solution knowing that the borrower is at high risk of not having the capacities to pay back the loan.

How Can you Reduce the Impact of Payday Loans on your Credit Score?

First of all, only apply for a payday loan online if this is absolutely necessary and all other options have been exhausted.
Secondly, you should be weary of how often you go about applying for such loans. Generally speaking, most lenders suggest waiting a minimum period of three months prior to requesting another payday loan online. Not taking risks is extremely valuable – if you want to increase your chances of acceptance, than make sure you’re following the basics from the get go. In all cases, don’t wait for rejection before taking action!

Summary

Your credit score defines how exactly you’re managing your finances – both over time and in the present moment. A payday loan online is an easy way to obtain quick money for short term financial problems. Keep in mind though that any type of credit can be used for or against you – improving or destroying your credit score.

Many factors can contribute to a negative credit rating, including missed payments on a credit card or even on a phone bill. If you’re looking to increase your credit score, then regular and successful payments on any type of short-term loan can be beneficial – especially when it comes to less costly financial solutions in the future.

How exactly a potential lenders views all this information is up to them and cannot be predicted. Prior to proceeding to any form of payday loan online request, make sure you obtain a copy of your credit report in order to make sure you know what things look like before doing so!