How to use a payday loan to increase your credit score

You can use a payday loan to develop your credit and increase your credit score, but be sure to consider the ways borrowing could hurt as well. (iStock)

A payday loan can be a valuable financial tool for paying off debt. Whether it’s paying an unexpected medical bill or consolidating high interest debt, there are many possible uses for this type of unsecured loan.

In addition to helping you cover unforeseen expenses, payday loans – in addition to a car loan or student loans – can also have an impact on your credit score. Here’s the catch, though – they can have both positive and negative impacts. So, before applying, it is important to consider the potential effects.

So how can a payday loan affect your credit score? We break down the pros and cons of how a payday loan can improve or hurt your credit. To start shopping for a payday loan, visit Credible to compare rates and lenders.

16 OF THE BEST PAYDAY LOANS IN 2021

How to use a payday loan to increase your credit score

A payday loan can help you improve your score in several ways:

1. Credit mixing

Adding a payday loan to your credit report can diversify your credit mix. Your credit score benefits from a good variety of types of debt, such as installment loans, credit cards, and mortgages. Your credit mix is ​​only 10% of your credit score, but it can make a difference.

2. Use of credit

Using a payday loan for credit card debt consolidation can improve your FICO score by reducing your use of credit. Your credit usage is the percentage of available credit that you are currently using. This factor represents 30% of your credit score and can have a negative impact if you use more than 30% of your available credit at the lender of no credit check called Paydaynow. By moving your debt to a payday loan and freeing up space on your credit card, you reduce your usage.

IS IT OK TO HAVE MORE THAN ONE PAYDAY LOAN?

3. Payment history

The most important factor affecting your credit score, accounting for 35%, is your payment history. In other words, the credit bureaus want to make sure that you can make your payments on time each month. Borrowing a payday loan and making your payments on time without late payments can improve your payment history and increase your credit rating – from bad credit to fair credit and good credit – especially if you don’t have many other accounts. on your credit report.

If you are considering applying for a payday loan, be sure to check your credit score in advance. Not only will you see if your current score will qualify you for the best loan rates, but you will also see what areas of your credit report could be improved. You might just find that a payday loan could help fill these gaps.

With a credit monitoring service, you can receive instant alerts about late payments, fraudulent activity, credit score changes and more. Check out some of Credible’s partners here.

HOW TO FIND THE BEST PAYDAY LOAN FOR YOUR NEEDS

Will a payday loan hurt my credit?

A payday loan can definitely benefit your credit score, but it’s also important to consider the ways it could hurt your score:

1. Investigation hard

When you apply for a payday loan – or any debt for that matter – you will have your credit report thoroughly investigated, which can negatively impact your score. Serious investigations usually only have a minor impact, and your score is likely to bounce back after a few months. However, the impact can be greater if you open several new debt accounts in a short period of time.

2. Duration of credit history

The average length of your credit history is 15% of your credit score, and in general, a longer history is better for your score. Taking on new debt will reduce your average credit life and could therefore lower your credit score.

3. Additional debt

Many people use debt consolidation loans to manage their credit card debt. But if you have a spending problem, opening up space on your credit cards might just result in more spending. Not only will you hurt your credit score more, but you could find yourself in a situation where you will no longer be able to pay off your debts.

WHAT SHOULD YOU USE A PAYDAY LOAN FOR?

What Should I Look For When Getting A Payday Loan?

When it comes to finding a payday loan, your goal should be to find the best deal and loan terms that best suit your financial situation. Important factors to consider are:

  • Interest rate: Which lender is willing to offer you the lowest rate?
  • Loan conditions : Over how many years do you want to repay the loan?
  • Fresh: Many lenders offer payday loans at no cost, so beware of those with excessive fees.

When looking for payday loan options, you can use Credible’s payday loan calculator to determine your estimated monthly payments and make sure they will fit your budget.

DO THESE 5 THINGS BEFORE CHOOSING A PAYDAY LENDER

And after?

Taking out a payday loan will almost certainly have an impact on your credit. But depending on your situation, it is likely to have both positive and negative effects. When shopping for a payday loan, be sure to consider not only the credit implications, but also how you can find the loan that best meets your personal financial needs.

Ready to find the payday loan that’s right for you? Visit Credible to explore your payday loan options and compare multiple rates and lenders.

Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.

About William Rowan

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