Do Payday Loans Hurt your Credit Score – 2024 Guide

Payday loans are great. When you’re in a pinch between the salaries, you can always rely on them. In many ways, they’re different than long-term loans. For one there are no installment payments. No, the payday loan is returned in one piece when your next wage hits the account, or at some other date if that’s how you arranged it. All tied fees and interest are also returned in one go.

Of course, you can find a lender who will give you a prolonged period to repay the funds, but these situations are not the norm. There’s a reason they’re called short-term solutions. While paydays loans can come in handy on most occasions, they can be a burden as they cost more than most of the other options you have. But, if the goal is to get a small amount of money that will help you short-terms, you should give them a go.

Also, you should know that these loans fall under the jurisdiction of the Financial Conduct Authority. FCA is clear on the terms and conditions of these loans and they state that you can’ repay more than $24 on borrowed $100 if you break the 30-day deadline. The bottom line is that you can never, under any circumstances, return more than twice the initial loan.

Does a Payday Loan Negatively Affect my Credit Score?

In most instances no, it does not. The sole condition you need to fulfill for it not finding its way to your score is to repay your payday. It is vital to have it on time and in full. But, in some instances, it can be attributed to your score. While your  score might be untouched this loan will be right there on your credit history. Some companies that deal with lending money might see you as an unreliable customer, and someone who couldn’t handle his finances on monthly basis. This could lead to you losing a chance to get a long-term loan from the said company. Furthermore, any type of loan can affect your credit score as it requires a new credit account and a hard search. All of these things create your credit profile, and, logically, your credit score could be affected by any loan.

Another thing you need to know is that credit score is not seen the same way by everyone. Certain companies that work with finances such as banks, reference agencies, lenders, and any other financial institutions have their way of calculating the credit score. Besides, you can never tell which methods and criteria they might apply when you come in asking for a loan. So, some companies might not take this the wrong way, while others could hold it against you. Many companies don’t look into payday loans and don’t see them as negative financial decisions. In many cases, they’re seen as any other loan, and the only thing that matters is that they’re returned in full and on time.

Can it Have a Positive Effect?


Unfortunately, no. And we’re talking about the events in which you repay your every payday loan in time. Just like taking one won’t decrease your credit score in most instances, there’s little chance that you repaying the loan in time and in full will increase your credit score. This type of loan doesn’t work that way. The principal reason why it won’t affect your score is that the data about the payday lends aren’t reported to the authorities. There are three national credit bureaus that are considered to be the biggest in the country. They are Equifax, Experian, and TransUnion. The fun fact is that they do not keep track of these loans. Because of this, they can’t make changes to your score based on them, as they’re not even aware of their existence. So, you are free to jump over to and take a loan if you need one. As they’re recommended if you require a short-time cash injection, there are a few dangers you need to be aware of.

Risks of a Payday Loan

Just like any other form of loan, these come with some risks, says experts from A1credit. Considering that we are mostly talking about smaller amounts of money, the risks are smaller and are few far between, but they exist. The biggest and first risk you’ll face is the high-interest rate. These are unsecured loans so the interest is pretty big. Fast funds are all good and well, but you need to look out for not-so-friendly interest on these loans. The lender does not have collateral on payday loans which they try to compensate through high-interest rates. Most people find themselves in a pinch so don’t look in interest, which causes issues down the road. Kicking the can only take you so far.

The next issue is time. Yes, you need the money short time, and in most cases, you’ll receive it rather quickly. But, the issue is that you need to be speedy with repaying it. Yes, there are various lengths in which you need to repay the money, and it can be longer than from a wage to wage, but with that comes the interest we mentioned above. Payday loans are good for lenders because they have short repayment periods. It can be one month, or it can vary from three to twelve months. Either way, you should always look to make your installments on time. In case you’re not on time there’s a chance you’ll be paying various fees and penalties for breaching the agreement.

We came to the end of our article, but credit score still matters. While these loans have little to no effect on your credit scores, your credit score affects your chances of getting a payday loan. If your credit score is already bad, there’s a chance you’ll have to pay higher rates on this loan and that your repayment deadlines are going to be shorter than usual with high penalties installed. In the end, it all comes down to your decision, and how much you need instant money. If you need to take the money right away, your score of credit might suffer a bit, but you’ll have time to lift it back up.