So you want a clear score. Can payday loans stop you from getting one?
Looking for a clear score but wondering if a payday loan could stop you from getting one?
Payday loans became prevalent as quick fixes for Australians in the 1990s, responding to the need for small, personal loans that banks and credit unions would no longer provide. Payday loans were frequently offered to people with bad credit or who didn’t have clear scores, making the loans even more ubiquitous. A small payday loan can be up to $2,000 and has a maximum term length of one year.
With soaring interest rates on these short-term, easy-to-get loans, people were burdened with more and more debt, unable to get out from under it. And payday loans have continued to be offered in Australia and are especially enticing to those with bad credit. Current statistics from Finder show that 60 per cent of payday loan borrowers have a bad credit history.
While payday loans are not always bad, they can stop you from having a clear score. Your credit score takes into account your entire credit history, which would include any payday loans you have taken out. There are a few things to keep in mind if you are planning to apply for a payday loan.
What are the negative effects on your credit score?
Payday loans can affect your credit score negatively in a few different ways. While many payday loans will not directly show up on your credit report, failing to meet repayments can result in a default – which most certainly will go on your record.
Additionally, applying for too many payday loans can lower your score and may look bad to future lenders. Ensure that you’re keeping tabs on the number of applications you’re filling out and continue to monitor your credit report for changes. You may also want to consider an alternative to a payday loan, like cutting back on expenses or asking friends or family for help.
Can payday loans help my credit score?
Payday loans may not always affect your credit score negatively. A payday loan could actually improve your credit score, as long as you make payments on time and pay it off within the term agreed upon. This shows up on your credit history as a positive thing; you were able to properly handle credit. This is what lenders want to see.
If you are worried about a low credit score, avoid taking out a payday loan. But if you must, like with any form of credit, as long as you make your payments on time and pay the loan off promptly, it can help fill your credit report with positive information. Credit Simple has more helpful information about credit scores, easily accessible online. You can check your credit score instantly, online and free right here at Credit Simple, and make sure you have a clear score by following the tips on our blog.