Payday loans are generally not reported to the three major national credit reporting companies, so they are unlikely to have an effect on your credit ratings. Most store payday lenders don't take into account credit reports or traditional credit scores. Payday loans are not listed on credit reports, and payday lenders usually don't perform credit checks on applicants, so requesting one won't appear as a harsh query on your credit report and they won't notify credit reporting agencies when you receive one. Since these loans go unnoticed, they don't help or hinder your credit history if you pay them as agreed. The answer is “no”, with one small caveat.
Payday cash advances are part of a subset of bad credit loans called “loans without credit checks”. Since these lenders without credit checks do not perform any checks of your credit history during the application process, they do not report your payment information to the credit bureaus either. A payday loan usually doesn't appear on the credit records of Trans Union, Experian, and Equifax, which are three major credit reporting agencies. However, special credit reporting agencies may collect your payday loan history. Lenders can keep this in mind when you apply for loans in the future. This is how payday loans affect your credit rating.
If you don't pay a payday loan, your file may enter the collection process and a debt collector may report your debt to major national credit bureaus. This is really the only time when payday loans will affect your credit rating. If you get a payday loan and pay it on time, you'll never have any problems. Although payday lending activity generally does not appear on the credit reports of the three national bureaus (Equifax, Experian, Trans Union), the Consumer Financial Protection Bureau (CFPB) warns that there are “specialized credit reporting agencies that collect part of your payday loan history and that lenders may have access to this information. A payday loan usually requires you to provide a check for the full amount of the loan plus additional charges. It may surprise you, but people actually apply for a second payday loan (from a different company) to pay off their first payday loan.
With 80% of payday loans being extended or renewed, it is clear that the payday loan debt trap is very real. A payday loan is usually a short-term loan with a high interest rate that is supposed to be repaid in full the next payday (or when you receive alternative income, such as a pension or Social Security). Since a payday lender will not process your credit when you receive approval for a loan, applying for a payday loan won't necessarily affect your credit. Even if a person doesn't default on a payday loan, there are still plenty of reasons why payday loans aren't the best idea. If you have applied for a payday loan, you know that all you need to “qualify for a payday loan” is a bank account, a source of income, and some kind of identification (i.e., driver's license). As with most loans, payday loans have implications on your credit rating, which may affect your ability to obtain payday and other types of loans in the future. Like payday loans, these “cash advance loans” are advertised as an “advance” on the borrower's next paycheck.
For many, this leads to unmanageable monthly payments and getting payday loans after the payday loan to cover the rising interest and fees on previous loans.
