Does Fast Cash Hurt Your Credit Score?

Fast cash loans -- commonly called payday loans -- allow borrowers to obtain funds quickly and usually without a credit check, so you only need a job to get a fast loan. This probably will not affect your credit score so long as you follow the rules set forth by the creditor. A payday loan more likely affects your finances, which may impact your ability to repay debts to other creditors that report to the credit bureaus.

Identification

Most administrators of payday loans do not perform credit checks or report to the major credit bureaus, because their customers tend to have bad credit and do not qualify for a loan from a major bank. Thus, the credit bureaus are unlikely to find out about a payday loan when you repay the lender according to the loan agreement.

Delinquency

Not repaying the fast cash loan or falling behind on the payment plan can cause the loan to get onto your credit report, because the payday loan company might sell the account to a debt collector. Debt collectors usually report delinquent accounts to the credit bureaus, and collection accounts are very damaging items to have on any report regardless of the size of the fast cash loan. Only when the payday loan has an original balance of less than $100 does the FICO credit scoring model ignore it.

Considerations

Payday loan companies usually charge extremely high interest rates, because they are meant for short-term loan emergencies to be repaid the next time you receive a paycheck. A single loan of $100, for instance, would cost $60 if it is rolled over to the next paycheck three times and a $15 origination fee is charged each time, according to the Federal Trade Commission. If you keep rolling over a large fast cash loan, it could trap you into a cycle in which you have only enough money each month to pay the interest. This could make paying other debts difficult and could cause defaults, which lower your credit score.

Tip

Explore all options before applying for a fast cash loan, suggests the Federal Trade Commission. Local banks and small loan companies usually offer much more favorable rates than payday loan centers. If you need a payday loan to pay off other creditors, ask about hardship policies the lender offers, such as deferred payments. Nonprofit credit counselors can work with creditors to reduce your monthly payment or provide advice on how to trim monthly expenses from your budget.