November 16 2023

Can Payday Loans Hurt My Credit Score?


For individuals typing in “credit repair near me,” you may have encountered the concept of payday loans. These expensive, short-term loans are offered so that you can receive the money you need in case of a sudden financial emergency. These may have negative implications on your credit rating, though.

In this blog, we examine how payday loans can affect your credit rating.

What is a Payday Loan?

A payday loan is one given to you to cover the difference between the pay dates. Such loans are typically marketed as a short-term means of catching up on lost paychecks or emergencies. The lender will give you the money in advance and charge you as a postdated check or as an online transfer, including the amount you need and fees. For this, you’ll either have to receive the money in cash or through a direct bank transfer.

What Is The Effect Of A Payday Loan On My Credit?

If you pay back on time and in full, your credit score will not be negatively affected by payday loans. However, lenders may consider them negatively because people who have a payday loan in their credit history can be associated with bad lending practices. Your credit score may be temporarily affected by loan applications because the credit reference agencies may search to add new accounts to your profile.

The credit score is multi-dimensional since even credit reference agencies, lenders, companies, etc., calculate it differently. In addition, some lenders do not discriminate between the unemployed and borrowers looking for short-term loans.

How Payday Loans Can Impact Your Credit Score

Now, let’s delve into how payday loans can potentially harm your credit score:

Late Payments

Payday loans could lead to late payments, which is one of the major ways they can affect your credit score. The lender may also have to report a delinquent account to the credit bureaus in case of not repaying the loan timely. It will create a negative posting on your credit file that will consequently reduce your credit rating.

Debt-to-Income Ratio

Additionally, payday loans may indirectly affect your credit score by making it more difficult for you to pay your bills because it increases your debt-to-income ratio. It is the one that lenders examine while assessing your creditworthiness, and a higher score may make it hard for you to get other types of loans like mortgages and car loans.

Access to Additional Credit

Unpaid payday loans are likely to impede your future financial applications. A payday loan could be construed as a sign of financial instability by traditional lenders, which might mean exorbitant interest rates of outright loan rejections.

Collection Actions

If you fail to make any repayments on the payday loan, the lender may refer your case to collections. At this point, lenders will instruct collection agencies to recover any funds given out as loans. You may end up damaging your credit score further, leading to additional hardships in securing other credits.

Credit Inquiries

After you request a payday loan, your lender might undertake a credit check. This type of inquiry is regarded as a hard inquiry, but it’s only temporary and could make you lose some points. Hard inquiries are multiple. Therefore, you appear at high risk to the other lenders.

Repeat Borrowing

Taking a payday loan several times also shows that you have financial problems and maybe you live above your financial means. It may lead to the lenders refusing to issue credit to you in the next time.

Protecting Your Credit Score

To protect your credit score when considering a payday loan, follow these steps:

1. Repay on time to avoid late payment reporting and damage to your credit.

2. Avoid rolling over the loan to avoid a debt cycle.

3. Explore alternative options for obtaining funds in financial emergencies, such as borrowing from friends or family, seeking assistance from nonprofits, or using a lower-interest credit card.

4. Develop a budget to better manage finances and reduce the need for payday loans.

5. Regularly review your credit report for inaccuracies or negative entries. You can access one free credit report from each of the three major credit bureaus annually through

6. Build an emergency fund to cover unexpected expenses over time. It can provide a financial safety net and reduce the need for payday loans.

Finally, a payday loan is one of the fastest ways to acquire some cash, but it bears a high price and may even spoil your credit score. However, it is critical to do due diligence and examine alternative payment options before applying for payday loans. If you opt to take a payday loan, ensure it is repaid promptly because it might affect your credit rating and push you into a debt cycle. Credit score is one of the very assets you possess as an individual and thus, should be on top of your list when it comes to protection.


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