A cash advance is a sum of money that people borrow in case of financial emergencies. They then repay their debt with interest when getting their next paycheck. Ideal for emergency purchases, cash advances are easy to get. Do these loans hurt your credit score? The short answer is usually no. However, there are nuances you need to be aware of.
Unlike a traditional financial institution, such as banks or credit unions, payday lenders don't typically report to the three major credit bureaus: Equifax, Experian, and TransUnion. When you apply with a bank, the clerk processing your application will run a full check of your credit report, thus instantly notifying credit bureaus that you have applied for a loan. It's imperative for banks to know your credit score, as that is one of the main qualification factors. A FICO score below 580 will usually prevent you from being approved. When you opt for payday loans, this doesn't happen.
The reason is that direct lenders don't pay much attention to their customers' credit scores. These lenders prefer using faster methods to do a soft credit check before proceeding with the loan. They compensate their risks by operating with higher interest rates and fees, as well as shorter terms. In short, applying for a payday loan doesn't typically hurt nor help your credit score.
The only impact your payday loan may have on your score is when you don't repay it according to your contract. Defaulting on a payday loan will negatively impact your score and creditworthiness.
Payday loans are not a perfect solution for all cases. Before deciding to apply with a payday lender, make sure you can afford to pay back a cash advance. Millions of Americans swear by payday loans. But then again, many enter a cycle of debt because they make poor financial decisions. Choose wisely.