Do Payday Loans Affect Your Credit Rating?

Does Credit Rating Impact Your Borrowing Ability?

Credit rating is done by credit bureaus, namely TransUnion, Equifax, and Experian, although there are secondary rating agencies that also do it. They basically prepare a detailed report of the borrowing habits of people- how they deal with debts. On the basis of that, they give them scores which could be anything between 300 and 850. If people pay off their debts on time, then that is considered to be a healthy credit habit and given a higher score. On the other hand, those who default loans, are given lower scores that reflect a bad credit habit.

When it comes to big scale funding such as business loans or mortgages, both credit ratings and loan payment/nonpayment impact each other. That means failing to make payments results in a bad credit score, and with a bad credit, it is difficult to get a mortgage. However, when it comes to unsecured payday loans, which are an easy and fast way of getting financed maximum up to $1,000, lenders do not check credit status. That means your credit rating does not impact your borrowing ability at least when a payday loan is concerned. Now the fact remains, do these payday loans borrowed during financial crisis impact your credit rating in return?

Know When Payday Loans Affect Your Credit Rating

Most of the time, just like your credit rating doesn’t impact your chances of availing a payday loan, borrowing a payday cash advance usually does not help you build a credit history. That is because the majority of the financing companies do not bother to report the lending activity to the rating agencies. However, if a debtor defaults a loan, then the lender assigns a debt collector to recover the money.

The debt collector who now has the responsibility of collecting the principal and interest from you might report the event to credit bureaus at times. Generally, they do it when a borrower defaults the loan intentionally. If a borrower does not contact the lender that s/he is unable to pay back the debt on due well before time, then it is considered to be an intentional nonpayment. In this situation, the debt collector reports it to the secondary credit agencies, and then that might hurt your credit score. Regular payment of debts, on the other hand, does not affect your credit rating.