Approximately one quarter of all Americans have no access to credit. A poor credit score or even a lack of credit history effectively closes the door to mainstream lenders. Unwilling to take the risk of lending to those with a bad track record or no track record, banks are not interested in the business of those who pose uncertainty, particularly with the increased tightening of lending criteria. Pay day loans, along with pawn shops, are the most viable option for those with no access to regular credit.
Increasingly pay day loans are also utilized by those who would traditionally have used credit cards. Many who are working to improve their credit scores are aware that pay day loan lenders do not carry out credit checks prior to lending. Using a pay day loan avoids a hard inquiry on their credit report.
Pay day loans are issued without credit checks because lenders are not interested in a borrower’s previous record of handling their finances. Instead, the ability of a borrower to repay the short term loan is assessed through pay day loan lending criteria. Standard requirements are that borrowers must be over eighteen years old, have a current bank account and an established monthly income of around $1000.
Considering that pay day loan lenders do not carry out credit checks on borrowers, many may make the assumption that the way they handle the loans is not recorded with the credit bureaus. This is incorrect. If the terms of the pay day loan are breached, the lender may well report to the credit bureaus and thus credit scores will be negatively impacted.
However, it is unlikely that positive handling of a pay day loan will be recorded, thus making them ideal for those who wish to borrow without the transaction showing up on their credit file. Using pay day loans will thus not benefit one’s credit score but can lower it. Those who are diligently working to improve their credit scores can ideally use pay day loans to avoid negative information being recorded on their credit file by their misuse of other forms of credit.
Faced with the prospect of being unable to meet a credit card payment by the expected due date, and thus late payment charges and possible penalty interest rates being applied, a quick unreported loan is a good choice. A one off fee is preferential to penalty interest rates of close to 30% on a credit card balance.
Pay day loans have a rather bad reputation, but used wisely can assist in a variety of circumstances, not least protecting ones credit score. Considering the high financial costs imposed by traditional lenders for late payments, coupled with the negative impact such a late payment has on one’s credit score, utilizing pay day loans to avoid such a scenario makes good sense.
Naturally, anyone considering taking a pay day loan should seek out a regulated company with low or free fees, and be sure to comply with the terms and conditions agreed to. Whilst applying for pay day loans will not affect one’s credit, failing to repay them on time will.