Do Payday Loans Affect Credit Ratings?

Payday loans are a handy solution for anyone looking to manage short-term debts. Online lenders and other financial institutions provide these loans to borrowers who must pay back the full amount, including interest and fees, once they’ve resolved their cash flow issues. While some lenders require borrowers to pay off their loans once they receive their salary, a few lenders, including My Canada Pay, allow more flexibility. Editor note: Please note that pay day loans can yield high interest rates that make paying back the debt challenging. Please consider reading the pros and cons of payday loans to make the most informed decision.

If you are wondering if payday loans have implications on credit scores, read on!

Who Is Eligible for Payday Loans?

Anyone above 18 years can apply for payday loans. However, approval for these loans depends on your credit history, the lending company criteria, and other specific financial information. Individuals with a poor credit history are less likely to qualify for these loans. However, some online lenders have specific payday loan provisions for individuals with bad credit.

Do Payday Loans Affect Credit Scores?

Payday loans don’t affect the credit score if you make payments in full on time. Most lenders promise not to submit your credit information to major credit bureaus if you pay back the loans according to the agreed terms. Your credit score won’t be affected if you adhere to the agreements.

However, if you default on the payments and other details in the contract, the lender can freely forward your credit accounts to collections agencies and report your delinquency to credit bureaus. If such happens, your credit score will automatically drop. While banks and credit card companies are required by law to report on-time payments for consumers with a line of credit, payday loan lenders aren’t obligated.

You can use payday loans to build your credit rating by making payments on time. Managing your loans properly and sticking to loan terms proves to lenders that you are a reliable customer.

How to Maintain Credit Score with Payday Loans

Payday loans can help borrowers build their credit ratings positively in many ways. Below are a few tips for maintaining and improving your credit score with payday loans:

  • Pay back the loans in full and on time –This includes the interest charged and processing fees. Be sure to notify your lender in advance if you can’t repay the loan on time. Most lenders offer flexible extensions.

  •  Don’t take out multiple payday loans – Lenders cannot trust borrowers with multiple payday loans. Taking out multiple payday loans also makes repayment challenging.

  • Don’t make multiple applications at once – Your credit score takes a hit every time a lender makes an inquiry into your credit report. While it may not appear immediately, lenders are cautious before lending to someone who has applied for payday loans from several lenders simultaneously.


Like student loans and other types of loans, payday loans often appear on the borrower’s credit report. You should consider taking out payday loans only if you are certain about making full repayments on time. Lenders also limit individuals who take payday loans regularly or from multiple lenders simultaneously. Making timely payments and improving your credit score can help you secure payday loans at favorable terms.

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