Do Payday Loans Affect Your Credit? How Reporting and Defaults Work
Most payday lenders never report to the big credit bureaus, so the loan itself usually stays off your report. Default can change that, once a collector or a court gets involved.
This guide is general information for borrowers in the U.S., not financial or legal advice. Lending laws differ by state and change over time; check with your state's financial regulator or a nonprofit credit counselor about your situation.
Key points
- Payday loans are generally not reported to the three major national credit reporting companies, so they are unlikely to affect your credit scores or help you build credit.
- Payday lenders generally do not check your credit reports, and most storefront lenders do not report your loan history either.
- If an unpaid loan is sent or sold to a debt collector, the collector could report the debt to a major credit reporting company, and collections can hurt your credit scores.
- If you lose a court case related to a payday loan, that information could appear on your credit reports and may lower your scores.
- Check your credit reports at least once a year for errors; checking your own credit does not hurt your scores.
A payday loan usually stays off your credit report, but that protection is thinner than it looks. The loan itself rarely appears on your file, yet an unpaid one can follow you to a debt collector or a courtroom, and those outcomes can damage your credit for years. Here is when a short-term loan shows up on your credit, and when it does not.
How Payday Lenders Report (or Don’t Report) to the Credit Bureaus
The Consumer Financial Protection Bureau is direct on this point: payday loans are generally not reported to the three major national credit reporting companies, so they are unlikely to impact your credit scores or help you build credit.
Reporting works in both directions. Payday lenders generally do not use your credit reports or scores to decide whether you qualify, and most storefront lenders do not report any information about your loan history either. On-time repayment does nothing for your credit record.
A few exceptions exist. Some payday lenders use information from specialty consumer reporting companies, which track short-term loan history separately from your main credit file. Some online lenders will also pull a credit report before making a loan, often to confirm your identity or check whether you have declared bankruptcy.
Why Most Payday Loans Stay Off Your Credit Report at First
The structure of the loan explains the silence. A payday loan is usually for $500 or less, due in a single payment on your next payday, often two to four weeks after the loan is made. There is no credit check and no financial check: payday lenders generally do not verify your ability to repay while meeting your other financial obligations.
Credit reporting companies collect and store financial data submitted to them by creditors, and creditors are not required to report to every credit reporting company. Since most payday lenders sit outside the traditional credit system, the loan is invisible to your score until something goes wrong.
That invisibility is not a favor. It also means the loan cannot demonstrate a good payment history, which is one of the main things lenders look for. If building credit is one of your goals, a payday loan will not get you there.
What Happens When an Unpaid Loan Goes to Collections
The picture changes when the debt leaves the original lender. If you do not repay your loan and the lender sends or sells the debt to a debt collector, the collector could report it to one of the major national credit reporting companies. Debts in collection can hurt your credit scores.
A collector has to give you validation information about the debt when they first contact you or within five days, including their name and mailing address and what to do if you do not think the debt is yours. The Fair Debt Collection Practices Act makes abusive, unfair or deceptive collection tactics illegal. Collectors cannot call you more than seven times within a seven-day period about a particular debt, and you can mail a letter asking them to stop contacting you.
If a collector contacts you about a payday debt you do not recognize, or someone threatens you over a loan you never took, read our guide to debt collectors, fake collectors and loan scams before you pay anything.
When a Payday Loan Lawsuit Reaches Your Credit Report
Some payday lenders and debt collectors bring lawsuits to collect unpaid loans. If you lose a court case related to your payday loan, that information could appear on your credit reports and may lower your credit scores.
Be careful
A collection account is only one part of the damage. Collection calls, lawsuits and bank withdrawals can all follow an unpaid loan.
Title Loans and App-Based Advances: Different Credit Rules
Car title loans and app-based cash advances sit outside the standard payday framework, and how they touch your credit can differ. Rules vary by state, so check with your state regulator or attorney general about what lenders in your state may report. If you use an app-based advance, ask the provider directly whether it reports to the major credit reporting companies or to specialty consumer reporting companies, and get the answer in writing if you can.
How to Check Your Credit Report and Dispute Loan Errors
You should check your credit reports at least once a year to make sure there are no errors that could lower your score or keep you from qualifying for credit. Checking your own credit does not affect your credit scores, so there is no cost to looking.
As you review each report, look for:
- Collection accounts for a payday or title loan you do not recognize
- A debt listed twice, or a balance that does not match what you owed
- Accounts that resulted from identity theft
If you find an error, dispute it with the credit reporting company. The Fair Credit Reporting Act gives companies that provide information to credit reporting agencies the duty to investigate disputed information. If a payday loan issue goes beyond a reporting error, you can submit a complaint to the CFPB online or by calling (855) 411-2372, or contact your state regulator or state attorney general.
A loan that never touches your credit can still cost you in fees, rollovers and bank charges. If you are weighing a short-term loan, start with how payday loans work and what they really cost, then compare them with credit union payday alternative loans, which are designed to be cheaper.
Common questions
Will taking out a payday loan hurt my credit score?
Usually not directly. Payday loans are generally not reported to the three major national credit reporting companies, so the loan itself is unlikely to appear on your reports or affect your scores.
Can a payday loan help me build credit?
No. Because most payday lenders do not report your payment history to the major credit reporting companies, on-time payments are generally not recorded, so the loan cannot help you build credit.
What happens to my credit if I never repay a payday loan?
The lender may send or sell the debt to a collector, who could report it to a major credit reporting company. Debts in collection can hurt your scores, and losing a related court case could also put information on your reports.
Do payday lenders check my credit before approving a loan?
Most storefront payday lenders do not use your credit reports or scores to decide whether you qualify. Some lenders do use specialty consumer reporting companies, and some online lenders may pull a credit report before making a loan.
