It is important to consider financial decisions in light of your credit record. This is because this record can be used in a lot of ways and you can be severely judged if it does not look good. Therefore, it is worth knowing exactly what it is and whether a payday loan will have an effect on it.
What is a credit record?
You credit record is an account of some details of your finances which potential lenders and others will use to make decisions. For example, it will include details such as what regular bill payments you are responsible for, any loans that you have outstanding and any CCJ’s and outstanding loan payments that you have. It is used to decide on whether you can take out loans as lenders want to see whether you are likely to be able to repay them. Potential landlords may also use them to decide whether they want to take on tenants as they will want to check they are capable of paying the rent. There are a few jobs, such as working for the government, where they may want to check your credit record as well. You can check your own record by using several different companies. It can be wise to make sure that the information on it is correct as you may be being unfairly judged otherwise.
What looks good and bad on a credit record?
This is a trickier thing to address. Lenders will have different criteria when looking at a credit record and so there is really no such thing as a perfect one. For example, some may want you to have made all of your bill and loan repayments on time whereas others may not mind that you have missed a few as they may be happy to have the opportunity to be able to charge you some extra fees from time to time. However, they are unlikely to take on someone who has missed lots of repayments or had other big financial problems particularly CCJ’s.
If you have no regular payments (so no rent, utility bills, phone contracts etc) and have no loans, then lenders will not know whether you are going to be reliable at repaying. Therefore, if you are in a situation where you name could be added to bills, perhaps if you are in a house share, partners or something where others have names on bills, then getting your name added could help. However, you do not want to associate yourself with someone who has a poor credit record as this could act against you.
Being self-employed or having a low or irregular salary can also go against you. Obviously, lenders want to see that you have a stable income so that you will be able to repay the loan.
Will a payday loan harm it?
A payday is difficult. It is a loan that people often take out if they cannot borrow elsewhere due to having a poor credit record. If this is the case and you take out the loan and repay it on tie then it could work in your favour as it will show that you are capable of being responsible. However, lenders may see a no credit loan as a sign that other lenders feel you are a risk to lend to and it might just put them off regardless of whether you have been able to repay it. It is very tricky to get into the heads of potential lenders, landlords etc. The best thing that you can do is to only take out a loan when you really need it and when you are confident that you can repay it in full, when or before required. Taking a risk and taking on a loan when you are not sure if you can afford it could end very badly, both for you personally, your finances and your credit report. In the same way that any unpaid debt could harm your credit report this could too.
If you have a choice between a payday loan and an alternative loan which does need a credit check, then you might be tempted to take the other, thinking that it will look better on your credit report. If you get turned down for that loan then this will look bad on your credit report so it is wise to only apply for loans that you feel you will be accepted for.
Not repaying a loan, whether it is a payday loan or any other type will look the same in the eyes of potential lenders. It is therefore best to take on a loan that you are confident you be able to repay. A payday loan can be riskier because you normally have to repay the whole loan in one lump sum. However, you may be completely confident that you will be able to afford to repay this and manage your money so that you can pay for all of your other financial commitments as well. It is worth sitting down with your bank statements and checking this first though. It I easy to guess and think we will be fine, but looking at the actual figures will safeguard us form making bad judgements.
