Short-term options almost never boost your score. But alternatives might.
Can a payday loan improve my credit?
Generally, no. Payday loans don’t work like traditional loans. They’re often considered a cash advance. So they typically have no effect on your credit score if you pay them back on time. However, they can damage your credit if you miss your loan’s due date.
Do payday lenders report to the credit bureaus?
Not usually. Most payday lenders don’t report on-time repayments to the three major credit bureaus: TransUnion, Equifax and Experian. They might not even report late repayments.
Often, the only time your payday loan is reported to a credit bureau is if it goes into collections. In this case, your lender sells your loan to a debt collection agency. It then alerts the credit bureaus that your loan is in collections, which hurts your credit score.
How can payday loans affect my credit?
Payday loans don’t often boost your credit, because most lenders don’t report your payment history to the major credit bureaus. Instead, they mainly open up opportunities to negatively affect your credit if you’re not able to pay them back.
When payday loans can help your credit
- The only time a payday loan can help your credit is if you borrow from a lender that reports to the credit bureaus. These alternative lenders like RISE Credit don’t offer traditional payday loans, but rather cash advance lines of credit or installment loans.
- This generally rules out payday lenders that don’t require a credit check to qualify, though even those that do might not report repayments to the credit bureaus.
When payday loans can hurt your credit
Payday loans can hurt your credit score in three situations:
- Late repayments. If your lender reports all repayments, a late repayment shows up on your credit report and lowers your score.
- Collections. Debt collection agencies typically report loans to credit bureaus. Collections show up on your report and can hurt your score even more.
- Lawsuits. If your lender sues you for repayment and you lose the lawsuit, it shows up on your credit report and lowers your score.
4 alternatives that can build your credit
Payday loans might not be the best way to build your credit. But other options are available to borrowers with poor or no credit.
1. Credit-builder loans
Available at many credit unions and banks, these loans are designed to improve your credit score while setting up an emergency fund. You likely won’t be able to access the money right away — often it goes into a savings account that’s turned over to you after you pay off the loan.
2. Payday alternative loans
PALs are available at select federal credit unions, which report repayments to the credit bureaus. They run from $100 to $1,000 with APRs capped at 28%. Unlike with a credit-builder loan, you can often access the funds within a business day or two.
3. Credit-building services
Companies like SimpleBills and RentTrack offer services that report regular monthly payments, like utilities and rent, to the credit bureaus. Some are designed to help new residents build a credit score after moving to the US, though often anyone can sign up.
4. Secured credit cards
A popular way to build your credit is by applying for a credit card backed by a security deposit. These cares are typically easier to qualify for than an unsecured credit card — some don’t even require a credit check.
To get the most benefit from your card, don’t spend more than you can immediately afford. And pay off your balance in full each month to avoid hefty interest charges that can eat into any benefits.
Payday loans in most cases can only hurt your credit score, because payday lenders don’t typically report to the credit bureaus. But other options out there can help you build your credit — and may even loan you money in the process.
Learn more about how payday loans work in our guide, including how to apply and what to expect.