Can Payday Loans Help Build Your Credit?

The average credit score in the U.S. is currently around 715. That’s pretty good, and we’re not the only ones saying that. A credit score that falls between 670 and 739 fits nicely in the “good” category per the various credit bureaus. But what if your credit score isn’t 715? And what if you’re not even at that 670? Unfortunately, when your credit score is less than ideal (aka good), it makes you less eligible for competitive credit offers. That means higher interest rates, and often, it can lower your chances for approval.

If you’re credit score is falling below the good range, it’s time to take some steps to repair it. But how do you do it? And, can payday loans build credit?

Do Payday Loans Affect Credit?

We have some good news for you. If you have a payday loan, it won’t likely hurt your credit score. But the flip side is also true. Payday loans don’t really help your credit score either. We have some good news for you. If you have a payday loan, it won’t likely hurt your credit score. But the flip side is also true. Payday loans don’t really help your credit score either. Most payday lenders do not report loan activity, whether good or bad, to the major credit bureaus (Experian, Equifax, or TransUnion). That means paying your loan back on time usually won’t give your score a lift.

However, there are a few exceptions. If you miss payments or fail to repay the loan, your lender may turn the account over to a collections agency, and that activity will almost always be reported. Similarly, if a payday lender does partner with a credit bureau and chooses to share repayment data, your loan could appear on your report. In these circumstances, late payments or defaults could lower your score, while consistent on-time repayment may offer a slight benefit.

Can Payday Loans Help Build Credit?

As we said earlier, payday loans don’t typically help you build credit. In fact, one of the reasons that payday loans can be so lucrative is that they are often available for those who have less-than-ideal credit scores. So, if you take out a payday loan, know that it won’t help your credit. But there are other things that you can do that will, and we’ll share that with you shortly.

But before we do, it’s worth noting that payday loans can have a negative effect if things go wrong. Late or missed payments may be sent to collections, which almost always shows up on your credit report. That kind of activity can drop your score and stay on your record for years, making it harder to qualify for future loans.

Here are some things you can do to help give your credit score a bit of a lift in the right direction.

• Apply for a secured credit card: This means you’ll have to provide access to collateral, but it is a great way to start practicing smart borrowing behaviors.


• Consider a credit-builder loan: These loans are offered by many credit unions and smaller community banks.


• Become an authorized user on someone’s account: If you have a family member or trusted friend with great credit, see if they would be open to adding you as an authorized user. This is a great way for you to benefit from their responsible borrowing behavior.


• Pay your bills on time: Paying your bills late, or missing consecutive payments, is one of the worst things you can do for your credit score. Be sure to pay your bills on time, all the time (and that goes for your payday loans, too).


• Pay off your debts: If your credit utilization (the amount you owe compared to the available credit) is 30% or higher, take active measures to pay fown the debt. Staying at 30% or below is a sign of healthy borrowing behavior and can give your credit score a healthy lift.

Why do Payday Loans Make Sense?

If it is true that payday loans don’t help you build your credit, then why are they such a good idea? Well, as we shared earlier, payday loans are often available to those with less-than-stellar credit. So, if you are struggling to get approved for more traditional loans, then a payday loan might be your best bet.

However, it’s important to understand that payday loans are designed to solve a specific need: to get you a small amount of money for a short period of time. Payday loans typically require the borrower to pay back the loan by the time of their next payday (thus the name, payday loan). Further, these loans come with a higher-than-average interest rate, as the loans come with more risk, as many people who need these loans are in a tough financial position.

That said, here are some of the scenarios where payday loans may be a good financial decision:

• Unexpected expenses: When a car repair, medical bill, or home emergency comes up and you don’t have savings to cover it.


• Cover you between paychecks: If payday isn’t for another week or two and you’re just scraping by, a payday loan can help you with expenses until that next paycheck comes.


• Urgent bills: To avoid late fees, utility shutoffs, or overdraft charges that could be more expensive than the payday loan itself.


• Fast approval and funding: When you need money quickly and can’t wait days or weeks for approval from other lenders.

Payday Loans and Credit

Let’s summarize. Payday loans do serve a purpose, and they can be the knight in shining armor for those who are in a short-term financial pinch. But remember that payday loans are not designed to build credit. In fact, trying to use them as a credit-building strategy can work against you if you miss payments and your loan is charged off to collections. 

Instead, think of payday loans as a short-term tool for urgent financial needs, not as a long-term credit solution. For those looking to improve their credit, focusing on alternatives like secured credit cards or credit-builder loans is a safer bet.

If you’re feeling the pinch, need quick cash, and traditional lenders just aren’t an option, Cash Loans Direct may be able to help. We offer payday loans that can give you the monetary support you need until your next paycheck arrives. 

Getting started is easy. Apply today with Cash Loans Direct and receive a response in as little as 30 seconds.