Late payments can stay on your credit report for up to seven years, negatively affecting your credit score–in this case, you may need the help of credit repair companies in Illinois.
Reasons Why Payday Loans Can Lower Your Credit Score
Delayed Payment on the Loan
When you accept a payday loan, it is important to make all payments on time. If you are late or miss payments, creditors may hire collection agencies to contact you and report negative activity to the credit bureaus. This will cause your credit score to dip and could stay on your credit report for up to seven years.
Too Many Payday Loans at Once
You may be wondering if payday loans do a hard inquiry–a hard inquiry is when a lender checks your credit report to evaluate your loan application. In most cases, lenders do not make hard inquiries when evaluating a payday loan request. If they do and you take out multiple payday loans at once, this may trigger numerous hard inquiries. Too many hard inquiries at one time can lower your credit score, so it’s important to be cautious when taking out payday loans.
If you take out too many payday loans at once, creditors may view you as a risk. This is because the more outstanding debt you have, the higher the chances are that you will miss future payments and default on the loan.
Increased Debt-to-Income Ratio
Your debt-to-income ratio is the amount of money you owe compared to how much you make. Payday loans can increase your debt-to-income ratio, which can lower your credit score. This is because when you take out a payday loan, you are adding more debt to your overall financial picture.
Tips to Avoid Credit Damage from Payday Loans
Your payment history is among the items that cannot be removed from your credit report, so it is important to do your best to ensure that you make all payments on payday loans.
1. Make On-Time Payments
The most important thing you can do to protect your credit score from payday loans is to make sure you make all payments on time. This will help ensure your credit score does not drop due to missed payments.
2. Develop a Budget
Developing a budget can help you stay on top of your finances and ensure you do not overextend yourself. This can also help keep your debt-to-income ratio in check and prevent your credit score from dropping due to taking out too many payday loans.
Final Thoughts
Payday loans can be a viable option for quick access to cash, but you cannot miss any payments or take out too many loans at once. These can cause your credit score to fall, and missed payments can stay on your report for up to seven years.
To avoid credit score damage from payday loans, make sure you always make on-time payments, take out only one loan at once, and develop a budget. If you need help regarding your financial health, be sure to reach out to the experts at The Phenix Group for a free consultation.