How Payday Loans Affect Your Credit Score

Payday loans do not affect credit scores in one simple way. The impact depends on whether the lender uses a soft inquiry, whether it reports payments, and whether the account defaults or goes to collections.

Application stage

Many payday lenders and marketplaces use a soft inquiry for prequalification, which does not affect your credit score. Some lenders may use a hard inquiry or alternative data. Always read the application disclosure before submitting.

On-time repayment

Many payday lenders do not report on-time payments to the three major credit bureaus, so paying on time may not improve your score. If a lender does report payment history, that should be disclosed in the loan agreement or privacy materials.

Default and collections

If you miss repayment and the account is sold or assigned to a collection agency, the collection account may appear on your credit report. That can hurt your score and remain on the report for years, subject to credit reporting rules.

How to protect your credit

• Do not borrow unless you can repay on the due date without overdraft.
• Ask whether the lender uses a soft or hard credit inquiry.
• Ask whether on-time payments are reported to credit bureaus.
• If repayment is at risk, contact the lender before the due date.
• Review your reports at AnnualCreditReport.com.

Related guides

See also what happens if you miss repayment and how to rebuild credit after default.