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credit score Feb 12, 2020

How Payday Loans Impact Your Credit Report

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How Payday Loans Impact Your Credit Report


One of the most common concerns that people have when they are considering a short term loan is how it will impact their credit report. The good news is that payday loans in Canada are not reported to credit bureaus, so they don’t show up on your credit report. However, not repaying your loan can damage your credit score if it gets sent to collections.

How credit scores work

When you get a loan from a lender (like a bank, car loan, or credit card), this information is given to the two main Credit Reporting Agencies in Canada, Equifax and TransUnion. Lenders provide these agencies with an update of your how you are currently paying your loans to understand your financial reliability. By having this credit information, lenders can assess your creditworthiness and make an informed lending decision.

Most payday lenders will check your credit

Despite the heavily advertised "no credit check" loan, most payday lenders will check your report to have a better understanding of your current financial situation and help them decide about your application. This credit-related inquiry should be disclosed when applying for a loan.

A credit inquiry, also known as a soft credit check, doesn't impact your credit worthiness. Many lenders will advertise this as a "no credit check" loan. However, licensed lenders in Canada will always check your credit report before approving you for a loan.

At iCASH, we do check your credit report, but we don't automatically reject an application if we see bad credit information. Infact, we specialize in helping people who have bad credit and limited lending options.

How payday loans affect your credit

Because payday loans are issued for a short period of time, they don’t get reported to the major credit bureaus the same way a car or home loans are. Payday loans only affect your credit score or credit history if you fail to repay them on time.

This also means that obtaining and repaying your loan won’t usually improve your credit score. However, it won’t negatively affect your score by increasing your outstanding debt neither.

How a payday loan can damage your credit score

Even though payday loans are not reported to credit bureaus, failing to repay your loan can result in your loan been sent to a collection agency or department and then reported negatively to the major credit bureaus. Also, this information may be considered by lenders when you apply for a loan with them in the future.

If you have a history of unpaid debt or late payments on your credit report you will often be reject when applying for credit or financing. If you do get approved you'll likely receive higher interest rates.

Taking out a loan that is hard to pay back can be really damaging to your credit. At iCASH, we only approve loan amounts that our customers can comftorably repay. We also split it up payments into three repayments over your next three paychecks (unless you're in Ontario or Nova Scotia).

Payday loans don't improve your credit score

Since payday lenders don’t report your payment history to credit bureaus and don’t appear on your credit report, paying off your loan doesn’t boost your credit score either. Even though payday loans won’t help you build your credit directly, they can still help you solve cash emergencies that may affect your credit in the future.

Payday loan history is still logged by credit bureaus

Payday loans aren’t reported to the credit bureaus in most cases. Even if they are, they don’t typically appear on your main credit report or affect your credit score. Rather, they may be logged and cataloged in a special reports section that are offered by the credit bureaus. While most people are familiar with their main score and report, there is a wide range of reports that credit bureaus produce for various market sectors and clients.

If you don’t repay your same day loan on time, it can be turned over to a debt collector or collection agency, who will report your loan debt to the credit bureaus. As long as you repay your loan on time, you don’t need to worry about it affecting your credit.

Why payday loan providers check your credit

In general, most payday lenders perform a check of your credit history and score as part of their approval process.

Credit check requirements for loans in Canada
Depending on the province you live in, payday lenders may notify in written or oral form that they will check your credit. In Nova Scotia, Prince Edward Island and Saskatchewan, lenders only need to tell you that they will check your report, while in the rest of the provinces they will require your written consent.

How lenders use your credit information
Credit checks are performed to verify the information provided in your application to prevent fraud and identity theft. Your credit report may include personal and financial information about you. For instance, it may contain your name, date of birth, current address, as well as if you have been declared in bankruptcy or have a court decision against you related to credit.

To learn more about how to access your credit score for free, you can consult the website of the Financial Consumer Agency of Canada.

Do you need good credit for a payday loan?

You don’t need to have good credit to be approved for a payday loan. Even though having a good score improves your odds of approval, obtaining a payday loan with bad credit is much easier than other types of credit.

While payday loans usually have less strict credit score requirements than most other kinds of loans or credit products. Many private online lenders who offer instant loans online have very low requirements in order to qualify.

At the end of the day, good credit is not needed for a same day loan.

Getting Payday Loans with Bad Credit or No Credit History

Obtaining a payday loan with bad credit or no credit history is much easier than other kinds of loans or credit products. Payday lenders do not have the same strict requirements that traditional financial institutions do.

Unlike banks, payday loan companies consider other aspects of your application to determine your eligibility for a loan. For instance, they will focus on your financial stability and income to make an approval decision.

The main consideration is not what your credit score may be, but rather if you can repay the loan amount in full and on time. Your odds of approval for a cash loan are good, regardless of poor credit history.

While a credit check is performed to verify your identity and other information provided on your online application, we don't reject applicants based on credit scores alone. You can obtain a bad credit loan of up to $1,500 when applying with us.