How Your Credit Affects Your Payday Loan Eligibility
You might think that your credit history will make it difficult for you to find a loan, especially if you have had difficulty making payments on your debts in the past. However, you could be eligible for payday loans regardless and simply not realize it.
Payday loans tend to be easier to meet the eligibility requirements for than most other types of loans. That’s due to the way the payday lenders determine if an applicant is a good fit for their loan. They look at the risk represented by the applicant, as any lender does, but they don’t necessarily look at risk in the same way as banks or other lenders would.
How Your Credit Score Comes into Play
When it comes to payday loans, your credit history or credit score is not usually much of a factor. As a rule, payday loans don’t generally involve a credit check. Now, the lender will still want to see that you have the means to pay for the loan when repayment is due, so they will ask to see a check stub or some other proof of employment. However, the will often forgo credit checks that banks tend to require.
Credit checks are typically reserved for long-term loans and not payday loans. There will be payday lenders who want to see your credit score, but they are quite rare. In general, your credit score isn’t important to a payday lender.
That said, you can’t just spend any way you like, wasting your money, and expect to be able to achieve eligibility for payday loans. You need to show that you can repay the loan on time, and that may mean providing some sort of collateral. If you have not been careful with your spending, you may have too many bills or not enough collateral to show that you are a low-risk candidate for a payday loan.
So, while the lender may not be looking at your financial history, they will be looking at where your finances are at present, and often your credit score determines where you stand currently and what kind of responsibility you are capable of handling.
How Taking Out a Payday Loan Can Affect Your Credit Score
While payday lenders may not check your credit score, other financial institutions will be checking your credit when you apply for a credit card, a long-term loan or when you try to buy a car. What you may not realize is that your dealing with payday lenders can actually have a negative effect on your credit score.
This is especially true if you don’t pay your loan back on time or if you take out repeated loans. These both show that you are not responsible and they can hamper your efforts to accomplish what you are trying to do. Even if you pay your payday loans back on time and in full, you can still experience a negative effect on your score.
That’s because payday loans are often considered last resort loans. They tend to be chosen by people who don’t have other options, and that can mean their credit isn’t very good. They are also often chosen by people who are not making good financial decision. That’s why they are in a situation where they need a quick loan to pay their bills. Of course, that’s not always the case, and sometimes a person will take out a payday loan because they had an unexpected expense or they want to finance a vacation.
However, your credit score doesn’t know the difference, and neither will people who take a look at that score. All they see is the number, and that may not be truly representative of you. It is wise to keep that in mind as you decide whether or not to apply for a payday loan. You just don’t know how it will be perceived by other lenders and financial institutions. They may see your borrowing as a desperate move and may label you as someone who presents a risk to them.
Of course, payday loans can help your credit score as well. If you only take out one occasionally, such as once a year, and you pay it back on time, that can create a reputation for you that bodes well for your level of responsibility. It shows that you are able to pay your debts, and it can sometimes reflect positively on your credit score. More often than not, faithful repaying of the loan looks better on paper for potential lenders than it does on your credit score.