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Payday Loans: Do They Affect My Credit Report?

Payday loans are a convenient way to quickly borrow a small amount of money that you can repay with your next paycheck. But does taking out a payday loan affect your credit report? How do they compare to personal loans? Stay on track of your personal finances by learning what impact each type of loan has on your credit report, and how you can check your credit history for free.

Do they affect my credit report?How Payday Loans Affect Your Credit Report
As long as you pay back your loan in a timely manner, payday loans have little to no effect on your credit report. With traditional loans, you receive a small ding with each application you submit. However, because most payday lenders consult a specialty credit bureau rather than the three major agencies, your credit rating remain unaffected by payday loan applications. Additionally, lenders usually don’t even report payday loans to the credit bureaus, so you won’t even see them on your report.

On the plus side, your debt level looks lower, but you also don’t increase your score by paying on time. If you become seriously delinquent on your payday loan, the lender may sell the loan to a debt collection agency. When that happens, the collector may use aggressive tactics to get the loan repaid, which may include reporting the delinquency to the major credit bureaus. Be sure to stay on top of your loan payments to ensure payday advances maintain a neutral impact on your credit report.

How Personal Loans Affect Your Credit Report
Unlike payday loans, lenders offering personal loans usually do a full credit check before approving your application. Because each credit check lowers your score, at least temporarily, be sure to limit the number of loan applications you submit so your credit score doesn’t take a huge hit. Find a balance between comparing rates with different lenders and submitting full applications. Once you receive the personal loan, your credit score increases as you continue to make payments on time. As long as you keep up your payments in full, you’ll add a healthy amount of positive credit history to your report.

How to Pull Your Credit Report for Free
You can request a free credit report from each of the three bureaus once a year. This service is required of the reporting agencies by the federal government. To access your free credit reports, visit the Annual Credit Report website. You’ll fill out a few pieces of personal information, and then can download your report from TransUnion, Equifax, or Experian. Consider spacing out your free downloads over the year if you plan on making major purchases or taking out a loan in the coming months. Once you receive your report, check to make sure the information is accurate.

Use your personal credit report to analyze how your loan application is viewed by lenders. Then, evaluate your personal credit goals to determine which type of short-term loan is best for you.