Do Payday Loans Affect Your Credit Score?

Payday loans are very popular amongst borrowers because there's no credit check involved in the process of making a loan. Very often people find themselves with a need for quick cash, and borrowing money may be the only possible solution. Depending on the amount, however, borrowing money from friends and family usually proves to be difficult. The one thing that's left is to borrow money from lenders. And even in this, there are issues regarding people's credit scores.

Payday loans indeed have great advantages, in that a person can draw quick money from it. Still, there's reason enough for some people to worry if it could affect their credit scores. Payday loans don't require the borrower to have a very attractive credit score, come to think of it. And for that reason people with bad credit are often drawn to it, bringing in a bad reputation to the matter of payday loans. It does make sense to question if taking payday loans will really affect a person's credit status.

What are payday loans?
Whether or not payday loans will reflect positively or negatively on a person's credit score can't be answered so easily. There are certain details to take into account. First off, it's best to start with understanding what a payday loan really is. For a simple explanation, a payday loan is one of the easier ways of getting quick money. In some places it is better known as a guaranteed loan or cash advance.

Payday loans typically have lenient requirements, and practically everyone can avail of it. In fact, even those who've been through a number of financial setbacks, such as repossession, bankruptcy or divorce, can avail themselves of payday loans. The requirements to get approved for funding are all lightweight, and handled in a lenient manner, so to speak. Applicants are approved quite easily, regardless of their credit scores—despite, even, bad credit scores. What is great about a payday loan is that it doesn't discriminate among borrowers, whether or not they're able to pay previous debts with great performance, or whatever financially appealing quality they might have.

The effect of payday loans on a person's credit status
Arriving at the heart of the matter, people start to feel unsure about the appeal of payday loans. For many who've worked hard to maintain their credit status, it would seem a bold move to risk wasting all that effort just to have a quick fix for a relatively small problem. If there is any other way to resolve a financial crisis—and sometimes it's not even that big to qualify as a crisis—would it be better not to take payday loans? If it will reflect badly on credit scores, then why do it at all? This is a common misconception amongst people.

A borrower is often reasonably sure that the easy way out is usually a bad idea. In this case, that's not true. Payday loans will not reflect badly on a person's credit score. It's not like a gun shot at pointblank range. As a matter of fact, there is a good chance that this will improve a person's credit status. Yes. It does affect the credit score, but it has an effect, mostly, in a good way.

Are payday loans good for the credit score?
Payday loans can be used to improve a person's credit ranking. Since it isn't based on credit history, many lenders—keep in mind, not all—will report the payment for this loan to the credit reporting bureaus. Even though it's not necessary to have a credit check, and most probably there were no credit check involved prior to getting approved for the loan, the payment reflects in the credit history as a recognized payment. Payments are always a plus to a person's credit score.

So then, are payday loans bad for the credit history?
Contrarily, there are cases in which payday loans will reflect badly on someone's credit status. Oftentimes this happens when the person fails to repay his or her lender at the right time. Similarly, if he or she fails to make arrangements, compromises, or justifications as to why he or she didn't pay on time. Getting on the bad side of the lender, a borrower is liable to be reported to the credit bureau as someone who doesn't pay loans. It doesn't take much common sense to figure out that this would drop a person's credit score dramatically. Something that should be avoided at all costs.

In summary, a payday loan is a good option for people looking for quick financial fixes. The issue whether it will affect the credit score positively or negatively is an altogether different matter. That can't be answered right off. There are things to be considered, such as how the lender reports the payday loan, and how the borrower is able to pay the loan on time. If repayment of the loan within the specified time period is made, then this will always reflect positively on a person’s credit score rating.