One of the biggest questions you may have is whether or not applying for a payday loan will create a hard inquiry on your credit report or if you should seek out the services of fast credit repair in Chicago.
Payday loans do not result in a hard inquiry on your credit report. This type of loan does not involve any in-depth credit check, so lenders can offer these loans without making a hard inquiry.
When you apply for a payday loan, lenders only look for basic information such as income, address, and employment status. This type of loan is designed for those needing short-term financial help, so lenders typically don’t make a hard inquiry–you can even get pre-approved without a hard inquiry.
What Is a Hard Inquiry?
A hard inquiry is an action a lender or creditor takes when they look at your credit report to approve or deny a loan. This type of inquiry stays on your credit report for up to two years and may affect your credit score, depending on the inquiry type and how many inquiries you’ve had.
Hard inquiries are a record that indicates to potential lenders that you are applying for new credit. This can be viewed as a risk, which is why most lenders will consider it when looking at your application. For example, if you’ve had multiple hard inquiries in the recent past, lenders may decide that you are taking on too much debt.
On the other hand, soft inquiries occur when you check your own credit report or when lenders are simply monitoring your account. These types of inquiries do not affect your credit score.
Does Everyone Get Approved for Payday Loans?
Just because payday loans don’t make a hard inquiry doesn’t mean lenders will approve everyone who applies for this type of loan. In most cases, some requirements still need to be met before it is approved.
For example, payday lenders typically look at your income, employment status, and other factors before deciding whether to approve your loan. They may also require you to have a checking account and valid identification. Additionally, some lenders may have a minimum credit score requirement to qualify for the loan.
So, while payday loans don’t create a hard inquiry, the lender still won’t approve everyone. Ensure you take the time to read through the requirements and make sure you meet them before applying.
Payday Loans and Credit Reports
If you are concerned about whether payday loans reduce credit scores, you’ll be happy to know that they are not listed on credit reports, and they will not affect your credit score. However, if you cannot make payments on time, defaulting on your payday loan may negatively impact your credit score.
Third-Party Collection Agencies
Your lender may hire a third-party collection agency if you fail to make payments on your payday loan. These agencies will report the debt to the credit bureaus, which can impact your credit score.
If collection agencies report you to credit bureaus, the information will stay on your credit file for seven years. So, if you are having trouble making payments, it’s essential to contact your lender and make arrangements before the debt is sent to collections.
Lawsuits
Some lenders may pursue legal action when you fail to make payments, resulting in a lawsuit. The information about the lawsuit may be reported to the credit bureaus, which can significantly impact your credit score.
Credit bureaus will list a judgment on the public record section of your credit file, where it will remain for seven years. This can make it very difficult to get approved for any type of loan in the future.
Can Payday Loans Lower Your Credit Score?
Payday loans do not affect your credit score. This is because payday loans do not involve a hard inquiry, and lenders won’t report the debt to the credit bureaus. So, if you’re looking to repair your credit score, payday loans won’t help.
In Conclusion
Payday loans do not involve hard inquiries and won’t appear on your credit score. However, if you fail to make payments, lenders may send the debt to third-party collection agencies.
If this happens, it can negatively impact your credit score–so, make sure you understand all the terms of your payday loan before taking it out. Talk to an experienced financial advisor at The Phenix Group if you would like to learn more about payday loans and what your financial options are if you need to repair your credit.