It can be easy to get so caught up in obtaining a payday loan that you forget what it means for your credit. Anyone who is thinking about getting this type of loan will have to make a point of getting this information before proceeding. A payday loan is a great borrowing option for many reasons, but you don’t want to go into one before getting all of the facts.
Applying
You need to keep in mind that your credit will be affected just from applying for a payday loan. Submitting one application won’t do much to reduce your credit score. The more applications you submit, the more damage your credit will take. This is precisely why you should refrain from sending out a lot of applications in a very short amount of time. Limit yourself to one application every two weeks until you are able to get approved. This will minimize the negative consequences to your credit.
Applying for a payday loan will show up on your credit report, but it won’t say whether you have been approved or declined. Make sure that you check the lender’s eligibility requirements on their website before applying. This can help you to prevent any unnecessary damage to your credit.
It is also a good idea to consider prequalifying for a payday loan. This will let you get a sense as to what your chances of approval are without any risk. You will also find out what sort of APR you will have with the loan, which is definitely a useful detail.
Missed Payments
Your credit will also take a hit every single time you miss a payment on your loan. This is why it is so incredibly important for you to stay on top of all your payments and make them on time. Multiple missed payments over the course of one loan term can really drop your score.
Defaulting on Your Loan
If you default on your payday loan, you can expect a huge negative mark on your credit report. This is when you fail to pay your loan back on time. You should try to avoid this at all costs, because it is very difficult to recover from in terms of damage to your credit.
When you suspect that you won’t be able to pay back your loan on time, make sure that you get in touch with the lender. You will most likely be able to work something out to where you can avoid having it go to collections. Once your debt is handed over to a collection agency, there isn’t much you can do to preserve your credit.
Positive Effects
There are also some pretty significant positive effects that getting a payday loan can have on your credit. If you manage to pay back your loan on time and in full, you can expect a fairly significant bump in your credit score. This will also be reflected in your credit report. As a result, it will be easier for you to get a better deal on a loan next time you need to borrow money.
The higher your credit score gets, the less interest you will pay on future loans. You should make a point of checking your credit three or four weeks after you have paid off your loan. If you don’t notice a positive change, you should contact the credit reporting bureau right away.
Borrowing More
You can also expect to see a negative mark on your credit if you apply to borrow more if you already have an active loan. It’s usually not a good idea to try to borrow more money until you have already paid off what you currently owe. This will reduce your chances of defaulting on the loan, which is the last thing you want. While it might technically be possible, it is typically not a good idea at all.
Getting a Payday Loan with Bad Credit
It is definitely possible to obtain a payday loan with bad credit, and many people in the UK do so every single day. One of the amazing things about this type of loan is that good credit is not a requirement like it is with bank loans. You should, however, try to boost your score as much as possible before applying. This will help improve your chances of getting a lower interest rate so you can save some money.
Before you go ahead and take out a payday loan, you need to reflect on all of the different ways that it can impact your credit. The information in this article should help you to make the right overall decision. Just remember that getting one of these loans can either hurt or help your credit, depending on your own actions.
