If you are tight on money and struggling to make ends meet, payday loans offer a quick solution in the form of a short-term cash advance that is to be repaid from a period of two weeks to a month after when you finally get hands on your paycheck. However, as tempting as the idea of immediate cash sounds, you need to look out for trustworthy lenders such as the ones at Cashfloat, as well as understand the impact of payday loans on your credit history.
What is a payday loan?
A payday loan is a short-term cash advance and a high-interest loan to provide you with instant cash in times of financial constraints. Its plus points are that it does not need collateral and a credit check and is therefore relatively easy to approve. Unfortunately, as with many loans, payday loans can affect your credit history.
Do payday loans affect your credit history?
The answer depends on whether you will repay the payday loan in full and on time or not. For borrowers who would repay their payday loan in full and on time, it will not show up in their credit history or impact their credit score. However, for borrowers with unpaid repayments, the payday loan will show up in their credit history for up to 6 years and will also negatively impact their credit score. You can avoid the situation by informing your lender about a late repayment, which they will view favourably in comparison to no payment. Finally, depending on the type of credit reference agency, your payday loan stays on your credit report for one to two years.
How do payday loans affect your credit history?
Depending on the circumstance, payday loans can both improve or hurt your credit history. If you have worked hard to manage your finances and build a good credit report, chances are you may be worried about payday loans impacting your credit history. The positives and negatives are listed below:
Positive impact of payday loans on your credit history:
– Your credit history and rating improves if you borrow minimal loans and pay them with interest in full and on time.
– A hard credit check performed by lenders on your application stays for up to 12 months in your credit history, and if you have applied to multiple lenders, this can reflect your desperate financial constraints.
Negative impacts of payday loans on your credit history:
– You receive more scrutiny on future loan applications due to your past payday loan showing up in your credit history.
– If you fail to pay on time, which is in most cases, your payment is defaulted and is shown in your credit history for 6 years.
– Mortgage loans will be denied based on your history of short-term payday loans.
How to lower the impact of payday loans on your credit history?
If you pay in full on time, don’t make multiple applications, and take several loans, you can lower the impact of payday loans on your credit history and score!