Do Payday Loans Affect Your Credit Rating?
Posted: Jun 14, 2019
This article is from Clear And Fair. You can read the original article here: Do Payday Loans Affect Your Credit Rating?
Payday loans can sometimes be unavoidable. An unforeseen cost can leave you caught short and in need of a small amount of cash to cover the bill before payday. Lenders will check your credit rating before approving an application, but do payday loans affect your credit rating themselves? Clear And Fair have the answers to help you better understand payday loans and the impact they have upon your credit score.
Credit Ratings Explained
Credit scores are used as a measure of reliability. When a lender is going to provide a loan, they want to know that they can rely on you to pay it back. This includes any kind of loan, from payday loans through to mortgages.
A credit score will therefore be created based on money you’ve borrowed in the past and when you paid it back. At its simplest, if you have borrowed money and paid if back on time, then you’ll have a good credit score. If you’ve borrowed money and failed to pay it back or were delayed, then your credit score will decrease.
However, while that’s the basic idea, credit scores aren’t actually that simple in practise. There are a lot of other factors that influence your credit score to different degrees, such as the amount of credit you use and the length of time your credit history spans.
If you have a credit card and frequently get close to your credit limit, then it can negatively impact your score. On the other hand, a lot of CRAs determine that if you borrow less than 30% of your limit and pay it back on time, then you’re more likely to have a good credit score.
Improving Credit RatingA payday loan could improve your credit rating. If you apply for the loan, are accepted and pay it back within the time agreed with your lender, then it can be beneficial to your credit score.
Remember that the purpose of a credit rating is to access how reliable you are for future loans and repaying money. If you repay your loan on time, then you have proven that you can reliably pay back a loan and your credit score will reflect that.
Decreasing Credit RatingHowever, just like any other loan, a payday loan could decrease your credit score if you don’t pay it back on time. Late repayments, or rescheduling your repayment date, suggests that you are more unreliable and therefore your credit rating will reflect that.
It’s also important to remember that late repayments could lead to serious debt. If you know before applying that you won’t be able to pay your loan back, then you should always look at other options and seek financial advice instead. The more debt you get into, the greater the negative impact upon your credit score.
Read the rest of the article with Clear And Fair, a leading payday loan price comparison website. https://www.clearandfair.co.uk/payday-loans-affect-credit-rating.html
Clear And Fair is an expert in payday loans offering a free price comparison tool to help you get the best price on payday and other short term loans.