Taking out a payday loan is an option for many people wanting to access cash quickly. Some might worry that taking out this type of loan could affect their credit rating in the future, but like any debt, providing that it is paid back in full and on time, there is typically no reason why a person’s credit rating would be compromised. In fact, taking out a payday loan and repaying on time and fully could even, in some situations, end up having a positive effect on someone’s credit score.
It should be noted that even though taking out a payday loan and complying fully
with the terms shouldn’t impact a credit rating, it may not be wise to take
one out if a person is intending on applying for a mortgage or other significant
borrowing method in the near future. Some lenders have shown that they look less
favourably on people with payday loans in their credit history, regardless of
whether they have paid them back or not.
Taking out a payday loan could signal to some lenders that someone has money
management issues and therefore applications for large amounts of cash over a
long period could be refused.
Proceeding with caution is probably the best advice. Some people might be
tempted to take out a payday loan as a way of boosting their credit rating but
this could be a gamble in the long term, particularly as credit reference
agencies now differentiate payday loans separately on credit files. This means
that serial payday loan borrowers can easily be identified by underwriters who
may decide the risk of lending is just too great based on previous payday loan
On balance someone taking out a payday loan once and paying it back in full at
the agreed terms could be unlikely to suffer any damage to their rating.
However, those borrowing this way regularly could signal alarm bells with
lenders when it comes to making a big commitment like buying a house.
For those concerned about their credit rating it is possible to keep an eye on
how it looks by requesting the information from credit rating agencies. They may
charge a fee for doing this but it could be the best way of someone keeping a
close eye on their credit file. It is also worth remembering that applications
for credit whether successful or not are recorded so be mindful of making
numerous applications if the likelihood is they’ll be refused as this too
could be damaging.