How Payday Loans Affect Credit

When you apply for a payday loan, lenders perform a soft credit check. A soft credit check is similar to when you view your own credit score. This review of your credit score and borrowing history is required for the pre-approval process. It does not require your approval and will not negatively affect your credit. 

Payday loans differ from when you apply for a major line of credit, such as in the case of a mortgage. This type of application will be linked with your credit history. With payday loans, the application will not be linked to your credit and will not result in a lowering of your credit score or appear on your borrowing history.

Your ability to pay your loan back on time will also not likely improve or help rebuild your credit. This is because most payday lenders do not report to any of the three major national credit reporting agencies: TransUnion, Equifax, and Experian. While your payday loan application and history are not generally reported to major credit bureaus, there is still a chance payday loans may harm your credit. 

If you fail to pay your loan back your credit may be negatively impacted. The lender could transfer or sell the loan to a debt collector. The debt collector can then report your delinquency to one of the three national credit agencies. Having a debt reach collections is likely to adversely affect your credit score and borrowing history.

Also, failure to pay on a loan may result in a lawsuit directly from the lender. The court case, depending on the outcome, could appear in your borrowing history. This scenario would also harm your credit.