Controlling Your Personal Finances While Running A Business

Paycheck Advances And Credit Score: 4 Things To Know

A credit score is usually necessary to take out a loan -- but that isn't necessarily true for a paycheck advance or a payday loan. There are some things you need to know about your credit score when taking out a paycheck advance (especially if your credit is important to you), but they aren't the same as other types of loan.

1. A Payday Loan Usually Won't Require a Credit Check

If you don't have any credit or if you have a very low credit score, a payday loan is usually the only option. Payday loans look at your current income rather than your credit score, in order to verify that you can pay them back. This means they have much higher interest rates than other types of loan but that they are often the only type of loan someone can get.

2. Most Payday Loans Don't Report to a Credit Bureau

A payday lender usually doesn't report your loan to a credit bureau. That means it has no negative impact on your credit score and it does not count towards your debt-to-income ratio. If you need good credit for whatever reason, a payday loan may be a good option to get some extra cash without affecting your permanent record. On the other hand, unlike a credit card, it isn't going to improve your credit score either.

3. However, Defaulted Loans May Eventually Be Reported

That doesn't mean a payday loan will never impact your credit score. If you default on it -- don't ever pay it back -- the loan may be shown on your credit report, after a judgment is made against you. But this is a process that takes a long time and you'll be made aware of the debt before it gets that far.

4. And a Credit Report Isn't the Only Report Available

Finally, you might assume that because a credit report isn't taken, that a payday loan isn't reported anywhere. But it actually is usually reported -- to the local network of paycheck advance companies. For the most part, payday loan companies do not want to give out multiple loans to the same person at the same time. If you need multiple loans, it may be better to try to get a larger loan through an online payday company rather than many small loans in your neighborhood.

All of this together means a paycheck advance isn't going to hurt your score unless you never pay the loan back -- and it may be available even if you have no credit at all. As long as you're able to pay your debts, your credit report should be safe. For more information, contact companies like