Payday Loans and Your Credit

Payday loans are cash advances that can help you cover unexpected costs or simply make ends meet until your next payday. Payday loans are appealing for many reasons; they do not require a credit check. Funding is made available almost immediately; and automatic repayment is set up so you don't have to worry about missing the due date. If used for their intended purposes, cash advance loans can be a lifesaver when you simply don't have enough money in the bank to cover your basic needs. However, using cash advance loans to handle continuous budgeting issues or support leisurely spending will mostly likely create future financial problems. Payday loans do have the ability to affect your credit; unfortunately it is only in a negative manner.

It is a common misconception that because you did not give a cash advance lender your social security number they will not be able to access your credit. However, there are ways in which an unpaid loan can and will affect your credit score. While a credit check isn't necessary to qualify for a payday loan, the potential for it to affect your credit is still there. Cash loan lenders do not report to any credit bureaus so your credit is not boosted for timely payments and payday lenders don't immediately report an unpaid loan to the credit bureaus. However, severely delinquent Payday Loan repayments are handed over to a collection agency who reports your loan to credit bureaus. That's when a payday loan starts to affect your credit.

Bounced checks are another way in which cash advance loans can affect your credit. Many cash advance lenders require you to write a post-dated check to be cashed at the end of your loan or will automatically deduct the loan amount upon your next pay date. If there are insufficient funds or the check bounces, it may indirectly affect your credit rating.

Preparing a payment plan and sticking to it will ensure you are properly using your loan, thus protecting your credit. While payday advance loans do not have the ability to boost your credit score, adhering to your Loan agreement will prevent a negative spot from appearing on your credit; preventing a negative mark is always a positive for your credit score. Responsible use of your loan can save you money in the long run. It will show your future lenders you are not a "high-risk" borrower which can lead to lower interest rates and penalty fees. If you are unsure you will be able to pay back a payday loan by your next pay date, it is probably in your best interest to figure out another lending option. If you have already found yourself in this position, it is advisable to consolidate your cash advance loans into a personal loan.

Payday loans are nothing to fear. In fact, they help many people everyday pay for their basic needs and make ends meet if they are temporarily short on cash. Making sure you are able to stick to your loan agreement will prevent any negativity from altering your credit score.

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