The effects of payday loans on your credit history

I know you have been wondering whether payday loans can help you rebuild your credit history. I’m sure that most Americans survive with payday loans to cover their expenses before their next paycheck. As much as we keep singing on creating multiple sources of income, depending on one salary may never come to an end.

Therefore that’s why payday loans have become a common phrase in the streets. And that dependency has no hope of ending soon, especially during the pandemic. So you may have been taking a payday loan not knowing their impact on your overall credit score.

But before I take you to the effects of payday loans on your credit history, let’s first know about the meaning of payday loans.

What is a payday loan?

I will define a payday loan as a loan that you apply for and repay during the next payday, hence the name. During its application, you will give the lender access to your bank to automatically withdraw the loan repayment. The lender withdraws from your bank the full loan amount plus the total interest. There will be nothing like paying in turns or installments.

Payday loans are usually kind of short-term loans to solve short-term problems. Of course, you will not take a payday loan to buy a house or a car. However, if you need to renovate your home, repair your car, or even get some groceries from the store, then a payday loan will be a good fit for you.

Most payday loan lenders can give you a limit of $1000, which you can only use for short-term needs. Anyone above 18 years and is employed can apply for a payday loan, making them simple to acquire.

How does a payday loan impact your credit history?

Many people will go for bad credit loans because the lenders don’t run credit checks. Anyway, who doesn’t like to get money without too many restrictions? No one!

However, Centrelink loans Australia will appear in your credit history for about one to two years, but they will not damage your credit score if you repay on time. Other lenders do not believe that payday borrowers can form a good relationship.

The lenders believe that payday borrowers are always people with low credit scores, meaning they have not been good on repayments before. So having too many payday loans history on your credit history can make you lose it big time when seeking other types of loans like installment loans.

A payday loan can also help you to rebuild your credit score if you manage it wisely. However, you should not keep on borrowing payday loans if you want to grow your credit score.

How to build your credit score with payday loans

Well, it’s possible to build your credit score with payday loans. First, however, you have to follow the following techniques.

• Pay the loan at the agreed time. If you don’t repay your payday loan, the lender can give you an extended time of another two weeks and double the interest. But that will not be a good idea because the interest rates are usually too high.
• If you cannot repay the total amount at once, ensure you borrow a tiny amount. We are trying to avoid a scenario of getting into a danger zone circled with debts.
• Do not apply for many loans at a go. If you apply for so many loans at once, you will always have trouble repaying them. And you will not rebuild your credit score in any way.

If you manage to build your credit score using payday loans, then you can now shift to other cheaper loans, which are long-term.

Conclusion

As much as payday loans can help you rebuild your credit score, it’s not a good idea to keep on borrowing. This is because the loans have very high APRs starting from 400%. You can also consider getting payday alternative loans.