Credit Score Effect on Loan Approval
When it is not possible to get a bank loan due to lack of time or non-compliance with the requirements of the bank, many apply to the payday lenders, hoping for a quick guaranteed approval. There are payday loan repayment stories that end sadly: the client misses the repayment time and receives an even greater penalty. These examples have become a reason for conversation about whether a payday loan affects the credit history and what consequences await the borrower. Customers’ concerns are associated not only with high responsibility for their obligations. They are interested in how the bank will treat a borrower who once decided to take out cash advance, fearing rejection of the application within the framework of standard banking programs.
Are payday loans reflected in your credit history?
The fears of borrowers who have lended extra funds are partly justified. Obtaining a credit line with an overpayment of 1-3% per day is clearly a forced measure. However, for other credit institutions, it is not the fact of contacting payday lending companies that is important, but rather the repayment procedure and responsibility shown when making payments.
If it is possible to successfully pay off the payday lender, having overpaid, it will hardly be difficult to return the borrowed funds to the bank at a minimum of 10-15% per year. Timely repaid debt will be considered a plus rather than a minus of the candidate who, before contacting the bank, decided to temporarily issue loans from the MFI.
How payday loans affect credit history?
It does not depend on the fact of issuing a payday loan. The question is what exactly the employees of the lending organization will write, what kind of feedback they will leave in the credit report. Credit score is spoiled only a client refuses to fulfill the obligations assumed under the agreement. It is simply impossible to spoil your credit history with an impeccable reputation for timely payments and full debt repayment.
Another matter is if the client is going to receive loans from the MFI in order to develop records in the credit history. It is no secret that many organizations do not share this information with other credit structures. It turns out that microcrediting has not achieved its goal, and there is still not a single line about the borrower in the credit bureau. In order not to regret about cooperation later, it is recommended to immediately discuss the issue of informing the payday loan before signing the agreement. If the information is not submitted there, it makes no sense to choose this organization for the first credit experience.
In the process of agreeing on a loan at the bank, a moment arises when the organization needs to obtain consent to the processing of personal information. If the MFI cooperated with the payday lender and sent there information about the client’s payments, the bank will be able to assess the degree of responsibility of the future borrower. By denying access to personal data, the borrower will certainly face a negative response to the application, because the bank is deprived of the opportunity to see:
- activity and frequency of money used;
- timeliness of making payments in accordance with the obligations under the contract;
- the origin of delinquencies, if any, and the degree of delinquency. The presence of an outstanding payday loan.
Do payday lenders check credit score?
The fact that the bank checks the information in the credit report when considering a loan candidate is known to many. The bank will check the records in the database for the past few years in order to have an idea of how the borrower copes with obligations, how solvent he is.
In the situation with loans frim payday lenders, this does not work. Usually, organizations themselves write on their websites that they are ready to give money to anyone, even a person with a spoiled credit history even with a multiple interest overpayment. While universal availability has been proven in practice, MFIs will not fail to check history by setting payment terms. The organization will take back its interest, justifying such a high overpayment by its own risks.
On average, MFIs issue payday loans for a month at 1–2% with the option of further prolongation or cancellation at the discretion of the parties.