How Payday Loans Can Affect Your Credit Score | - Your Finance Tips

Payday loans provide financial assistance to borrowers that have nowhere else to turn for help. However, when using payday loans, many people fear how their credit score will be affected. That is why it is important to become familiar with the 3 ways payday loans can affect your credit score.

What Is a Credit Score?

Your credit score is determined by the information in your credit report, and this allows lenders to determine whether or not to give you a loan and how much interest can be charged. Your credit report contains information on how your bills are paid, where you live and work, and if you have filed for bankruptcy or been sued or arrested. The credit report also includes loans that have already been paid off, bill payments that have been missed, and if you currently have any debt.

Your credit rating can be anywhere between 300 to 850. If you have a credit rating in the 700s or higher, you will have a better chance of being approved for loans or purchases, such as insurance. Higher credit scores can also increase your eligibility for larger loan amounts.

What Are the 3 Ways Payday Loans Can Affect Your Credit Score?

1. Positively.

When used responsibly, payday advance loans can potentially improve your credit rating. This is possible because some lenders reward responsible customers that pay on time by reporting it to the three major national credit bureaus, TransUnion, Equifax, and Experian. However, payday advance loans can also help indirectly by allowing borrowers to take care of overdue bills quickly to prevent further damage to an existing score.

2. Negatively.

If people use payday advance loans irresponsibly, it can negatively affect their credit. This is because lenders will report your delinquency to a collections agency to begin the process of collecting what is owed. By doing this, the three major credit bureaus will also become aware of the outstanding debt and your credit rating will be negatively affected. That is why it is very important to determine if you can absolutely pay back what you owe on time before taking out a loan.

To avoid negatively affecting your credit, consider the following:

? Only take out the smallest amount you need to cover your expense
? Be aware of the interest rates and fees attached to your loan
? Be aware of how long you have to repay your loan
? Pay your loan back on time

3. Not at all.

In most cases, as long as you pay the loan back on time, your credit will not be affected by payday advance loans since the lender may not make any reports at all. Since many lenders do not require credit checks, your loan may not even appear on your credit report.

As you can see, it is very important that you determine if payday loans are right for you by becoming familiar with the 3 ways payday loans can affect your credit score. As long as you can manage your loan in a responsible manner, you can find the financial relief you need while still maintaining your credit rating.

Source: http://yourfinancetips.co.uk/how-payday-loans-can-affect-your-credit-score/

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