Wednesday 19th of December 2018

Payday Loans and Your Credit Report

If you have bad credit and are looking to rebuild your score, a payday loan will likely not help you in this regard. The short-term lending industry is typically looking to make a quick and substantial profit off of those who utilize their services. Most of these businesses started in the check-cashing industry. They provided a service for individuals without access to a bank account. They would generally charge a percentage fee for cashing your payroll check. However, as these businesses started to realize that there was significant money to be made in making short term, small sum loans to consumers who were already strapped for cash, they quickly jumped into the business.

Do Payday Loan Businesses Report to the Bureaus?

The answer to this question is: it depends. If you utilize a payday loan service and pay back the loan as agreed, it is highly unlikely that your prompt payment would be reported to a bureau. Your score is used to determine your credit worthiness over a significant span of time. Reporting to a credit bureau after making good on this short term loan would be a waste of time for all involved. It does nothing to establish your worthiness. Even worse, if payday lending businesses did report to the bureaus, one could easily imagine a scenario where utilizing an advance would hurt your score because it means that you are strapped for cash and have a risky financial situation.

Conversely, if you utilize a payday loan service and fail to pay back your balance as agreed, the fees will begin to pile up. Depending upon the duration of time in which you fail to pay back your short-term loan and the amount you owe on the loan, the lending company may report this amount to a bureau. Most businesses in the industry have taken steps to ensure it never gets to this point. They typically set up some kind of Electronic Funds Transfer (EFT) or post-dated check with their customers. The customer gets to decide when the amount of the advance will be debited from their bank account. Because of this direct access to your bank account, lenders typically get their money and interest back from their customers, even if it the timeframe is beyond what was originally agreed upon. However, in extreme cases where the fees become astronomical, or your bank account is closed and they cannot debit your account, you will likely have a negative report to sent to the major bureaus.

If you are looking for a way to establish or rebuild credit, payday loans are not for you. The red-flag you should look for if you are trying to establish or rebuild is to see if the business does a check before they extend you a line of credit. If they do, they probably will report to the bureaus and vice-versa. Online short-term lenders do not need to perform a credit check because they require that you give them direct access to your bank account hence, payday loans typically avoid reporting to the bureaus.

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