Being short of money can be very infuriating. You have to cut off expenses, and it seems like payday is years away, and you’ll barely make it. For such situations, you can call on payday loans to help you make it until receiving your income.
However, some people tend to avoid payday loans because they fear the negative impact they could have on their credit rating. How can a payday loan online do that, though? Let’s jump straight into the info.
Can Payday Loans Help Increase the Credit Score?
Although payday loans may lower the credit score in certain situations, they can also be helpful in other situations. Your file also contains positive credit reporting, which gives information about your borrowings. So, it includes details about the type of credit account you opened, payment history and when the account was closed.
Now, you may be wondering how that is helping your case. Well, if you make your payday loan repayments on time, it can actually regulate any bad history your file contains. Moreover, if you have a good repayment history, the credit limit of open credit accounts is shown too. Therefore, if you have a payday loan and a prospective lender checks your file, they will see that you have a relatively small loan.
If they have checked back in the day, they would have seen that you applied for a loan but have no idea that you’ve opened it or how much credit you took. Nowadays, borrowers have access to information about your financial position.
How Can a Payday Loan Negatively Impact Credit Ratings?
It’s no surprise that the credit score is taken into consideration before someone lends you money. This score is calculated by individual credit reporting agencies, and your credit report may depend on certain factors.
For instance, things such as the amount you borrowed, type of credit account, number and frequency of credit inquiries and many others could affect your score.
When you get a payday loan, in doesn’t directly impact the amount you can borrow. It can, however, impact your credit score that is used when applying for a loan. The score can have an influence on the lender’s decision whether to give you cash or not. Still, it’s only one of the factors they take into consideration.
If you get a loan and you’re unable to repay it, it may affect your credit score. Although the credit rating is not the decisive factor when a lender is thinking of a decision, it’s definitely important. If your file shows that you were unable to make repayments on time with past loans and your credit score was affected, future lenders may exclude you.
When applying for a payday loan, you need to think well. Will you be able to repay it? How bad is it going to affect your credit score? If there are too many negatives, you should reconsider, especially if you may need a good credit score in the future.