I was re-reading an article on payday loans and credit scores that I wrote back in November 2011 and realised that it hadn’t really answered the question.
Well – it hadn’t answered the question to my satisfaction, which is why I felt it needed addressing again – so consider this article it’s official SEQUEL!
After looking at payday loans and the way they’re administered and whether they actually appear on credit scores I finally came to a conclusion that I was happy with.
A number of years ago, when monthly cash advances first made their mark in the UK, the industry was still too fledgling and too far removed from traditional financial services for it to be considered as a credit scoring factor. However, more recent research suggests that this is no longer the case.
When you take out a payday loan with a reputable supplier – be it Wonga.com, PaydayUK or QuickQuid, the loan will appear in your credit score.
More importantly – when you repay the short term loan this will also appear on your credit score. This suggests that payday loans could be more useful than a simple emergency source of credit.
Think about it for a minute… you badly need credit to help pay bills or help buy a new car. Unfortunately no one will lend to you because your credit history is just too poor.
But hang-on a second – you’re no longer the irresponsible spender you once were. But the lender or credit card company doesn’t know that – based on your credit score.
So you turn to a payday lender for a quick, short term loan – you repay the full amount at month-end. This positive repayment is shown on your credit history – indicating that you are once again a good bet.
Now I’m not advocating payday loans as the saviour of poor credit scores… but this example surely shows you the potential.