Skip to main content

Can payday loans improve your credit score? Yes, absolutely they can. But is a payday loan the best way to improve your credit score? Probably not. We have covered it all so you can understand exactly how a payday loan can affect your credit score.

 

What is a credit score?

A credit score is a number between 300–850 that shows a consumer’s creditworthiness. Banks and lenders will look at your credit score to gauge how likely you are to be responsible with the money they lend you. The higher your credit score the lower risk you are, the better rates will be available to you. A credit score is based on credit history: number of open accounts, total levels of debt, and repayment history, and other factors.

 

How can a payday loan improve my credit score?

If you take out a payday loan and make your repayments regularly and on time you can absolutely improve your credit score. Making regular payments and showing banks that you can stick to a repayment plan is a great way to improve your credit score. Payday loans may also be a good option for those who currently have a bad credit score and are looking to improve it, as payday loans are one of the few borrowing options available for people with a poor credit score. 

 

credit report- payday loan affect on credit score

 

Will applying affect my credit score?

If you apply for a payday loan with Pheabs, it will not affect your credit score at all. However, other payday loan applications may negatively impact your credit score. Any application for a payday loan will stay on your credit file for 6 years.

 

Why might a payday loan not be a good way to improve my credit score?

Payday loans are considered quite a high risk way of borrowing money as interest rates are often higher than other loans. The main way that a payday loan could negatively affect your credit score is if you become unable to pay off your loan. With fairly high interest rates, if you fall behind on payments interest can build up quickly and leave you with a large amount of debt. Large unpaid debts that you are not paying off will have  a very negative impact on your credit score and make it seem as though you are not a responsible borrower.

 

Credit score affected by payday loans

 

Safe ways to improve your credit score

Here are some quick, easy and safe ways to improve your credit score:

  1. Clean up your credit report: Before you start trying to improve your credit score, you need to know what you are working with. Websites like AnnualCreditReport.com can give you a credit report from each of the three big nationwide credit reporting companies; Equifax, Experian and TransUnion. You are entitled to one free report every 12 months, so when you request it, be ready to print it or save it to your computer. Look for late payment, if these are incorrect you can dispute them.
  2. Pay down your balance: How much money you owe dictates a large part of your credit score, so a great way to improve your credit score is to pay off any outstanding debts as quickly as possible.
  3. Increase credit limit: If you’re not in a position to pay down your balances, you could take a different approach to improving your credit utilization rate. Call your creditor and ask for a credit limit increase. If you have maxed out your $1,000 card and get a limit increase to $2,000. This way  you instantly cut your credit utilization rate in half. But, importantly you must not spend any of your new credit.