How Pay Day Loans Affect your Credit

Pay day loans are amazingly easy to obtain as the lenders don’t look to your credit history to determine if you are a good risk or not, but rather they look to your current ability to repay them. As a pay day loan is a fixed amount for a short period of time, basically to tied you over until the next pay day, the lender is looking for a quick return on his money. Your past credit dealings thus become irrelevant if you appear to have the means to repay a specific pay day loan from your next pay packet.

When you apply for a pay day loan the lender wants to know two basic things to assess your ability to repay. He wants to know that you have a current monthly income above a certain amount, which has been steady for a period of time; and that you have a current active bank account. No credit check is carried out before you are granted a pay day loan.

The advantages of a no credit check loan are several. If you have a bad credit history and are unable to obtain finance elsewhere a pay day loan is often your only option if funds are needed for an emergency. It could also be the case that you are attempting to rebuild a credit score and do not wish an application for further credit or a loan to appear on your credit file at this particular time, knowing that the more applications you make the more it can negate the work you are doing to increase your score. Thus by applying for a pay day loan which is not credit checked you can borrow without it showing on your credit file which could well be advantageous for you to do.

How you handle a pay day loan may actually affect your credit score. If a loan is taken and repaid in a timely fashion it will not be recorded so will not impact your credit score at all, and thus not help to improve it. However, if you are delinquent in repaying a pay day loan the lender may then report you to a credit bureau. It only takes a moment to enquire when you apply for a pay day loan, if the lender reports to a credit bureau. Failure to repay a pay day loan as agreed will most likely have a detrimental effect on your credit score.

The only way a pay day loan is really going to affect your credit score is if you misuse it by failing to repay it on time, thus they should only be used if you are confident that you can comply with the terms and conditions. Don’t assume that because a lender does not credit check you to approve a loan that he won’t record any delinquency. A pay day loan lender has the same rights as any other lender to let other lenders know when someone is irresponsible with finance.