Do Payday Loans Show on Your Credit Report? What You Need To Know

Payday loans can sometimes show up on your credit report. Most payday lenders do not report to Equifax, Experian or TransUnion, so your loan and on-time payments usually will not show up on your standard credit report. But if you fall behind and the debt goes to collections, or if the lender sues you, it can land on your credit report and hurt your score.

Key Takeaways

• Most payday lenders skip the three main credit bureaus, so on-time payments rarely help you build credit. The real risk shows up when you miss a payment, the debt goes to collections or the lender sues you.

• Collections can drop your score by 50 to 100 points and stay on your report for up to seven years. Some lenders also report to subprime bureaus like Teletrack, FactorTrust or Clarity Services, which future lenders may check.

• Before borrowing, ask the lender if they run a hard credit check, report activity to bureaus or offer extended repayment plans. Consider lower-cost alternatives like credit union loans or cash advance apps such as Instacash® from MoneyLion.

Summary generated by AI, verified by MoneyLion editors

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What Is a Payday Loan?

A payday loan is a small, short-term loan — usually $100 to $500 — that you agree to pay back on your next payday, often within two to four weeks. According to the Consumer Financial Protection Bureau (CFPB), payday loans carry an annual percentage rate (APR) that typically ranges from 300% to 400%, making them among the most expensive ways to borrow.

When Do Payday Loans Show Up on Your Credit Report?

A payday loan usually shows up on your credit report only when you miss payments, and the lender sends the debt to a collection agency or files a lawsuit against you. 

Payday loans may show up if:

• The payday lender conducts a hard credit inquiry. 

• The payday lender reports the loan itself to the major credit bureaus.

• The payday lender reports negative loan activity to the major credit bureaus. 

• A collection agency buys the debt and reports it to the major credit bureaus.  

Payday loans usually don't show up if:

• The lender doesn't report to the major credit bureaus.

• You repay the loan on time.

• The debt never goes to collections.

• The debt results in a lawsuit or judgment.

Most payday lenders operate outside of traditional credit reporting systems. Debt collectors, however, are in the habit of reporting to the main credit bureaus, usually as a means to encourage you to repay. 

That’s why, most commonly, negative payday loan activity indirectly winds up on your credit report only after it enters collections.  

Previously, payday loan-related lawsuits or judgments could appear on your credit report, but the National Consumer Assistance Plan (NCAP), a settlement between the major bureaus and over 30 state attorneys general in 2017, largely ended this practice.  

Specialty Subprime Bureaus to Know

Some payday lenders skip the three main bureaus and instead report to specialty subprime bureaus. These reports sit outside Equifax, Experian and TransUnion, but lenders still use them to check your borrowing history.

• Teletrack: A subprime bureau owned by Equifax that tracks short-term and payday loan activity.

• FactorTrust: A subprime credit reporting service, also owned by TransUnion, that focuses on non-traditional lending data.

• Clarity Services: An Experian-owned bureau that collects data on payday loans, installment loans and other subprime products.

How Tribal and Online-Only Payday Lenders Report

Tribal lenders operate under tribal sovereignty and often follow different rules than state-licensed lenders. Most do not report to the three main credit bureaus, but they can still send unpaid debts to collections, which will show up on your credit report.

Online-only payday lenders work much the same way. They rarely report on-time payments to Equifax, Experian or TransUnion, but many share borrower data with subprime bureaus like Clarity Services or FactorTrust. If you default, the debt can still be sold to a collection agency, which can damage your credit.

Do Payday Loan Credit Checks Show on Your Credit Report? 

Will Applying Hurt Your Credit?

Applying for a payday loan will only hurt your credit if a payday lender conducts a hard credit check. Most do not. Instead, they might conduct a soft credit check or use specialty subprime reporting agencies, such as Teletrack or FactorTrust, to review borrowers' activity. 

Soft credit checks and specialty reporting inquiries don’t appear on your traditional credit reports, and so won’t hurt your credit score. 

If a payday lender happens to conduct a hard inquiry, the effect on your credit should be minimal; hard credit checks generally cause temporary dips of five points or less. 

👉 Do Payday Loans Help Your Credit?

Do Payday Lenders Report to All Three Bureaus?

Reporting loan activity to Equifax, Experian and TransUnion is voluntary. Nearly all payday lenders opt not to report on-time payments or other positive account activity. Some may report missed payments, defaults or other negative account activity. 

“A payday loan will affect your credit score if the lender decides to report it to the credit bureau,” said Paul Gillooly, director at Dot Dot Loans, a subprime lender comparison site.

👉 Do Payday Loans Check Credit?

What Is ChexSystems — and Is It the Same Thing?

ChexSystems is a specialty consumer reporting agency that tracks how well you manage traditional bank accounts, not loan or credit products.

A payday loan could affect your ChexSystems report if it results in returned payments, bounced checks, overdrafts, associated fees, longstanding negative bank account balances or bank account closures. 

Banks or credit unions use ChexSystems reports when deciding whether to approve you for a checking account, savings account or other non-credit banking service. 

Can Payday Loans Affect Your Credit?

Here's a look at some common questions and scenarios about payday loans and any potential impact on your credit.

What Happens to Your Credit Report if a Payday Loan Goes to Collections?

If a payday loan goes to collections, it’s highly likely to appear on your credit report and harm your credit score, as most debt collectors report to the big credit bureaus.

New collection accounts can cause your credit scores to drop by 50 points or more, depending on your current credit standing. They can take up to seven years to fully “age” off of your credit report, though their effects lessen over time. Plus, newer credit scoring models, like FICO 10 or VantageScore 4.0, ignore paid collection accounts entirely.   

Can Payday Loans Lead to Bank Account Closures or Overdrafts?

Payday loans typically require borrowers to secure the funds with a post-dated check or an authorized electronic funds transfer. If your bank account lacks sufficient funds when the payday lender attempts to collect, you could incur bounced check, returned payment or overdraft fees. 

Repeated returned payments, too many overdrafts, outstanding bank fees and negative account balances can lead your bank to close your account. If your financial institution reports these activities to ChexSystems, you could have a hard time opening a new checking or savings account.

Will a Payday Loan Hurt Your Chances of Getting Approved for Other Loans?

A payday loan could easily hurt your loan approval odds, given that the negative information associated with one might appear on your credit report. 

Even if it doesn't, a traditional lender might ask about past payday loan activity or spot it on bank statements turned over during underwriting. They may view any reliance on high-cost, short-term credit as a risk and deny your application.  

Plus, while payday loan-related lawsuits and judgments shouldn’t appear on your credit report, they’re still a matter of public record, and if a financial institution checks those, they might also turn you down as a result.

👉 Pros and Cons of Payday Loans

Should You Worry About Payday Loans on Your Credit Report?

Unfortunately, you can't assume that a payday loan won’t appear on your credit report. Some payday lenders report activity, as do collection agencies that buy payday loan debt.

Plus, there are other ways a payday loan could come back to haunt you. Fortunately, you can take steps to minimize any real or theoretical damages.

What To Do If You've Already Taken Out a Payday Loan

• Check your credit reports by requesting them for free through AnnualCreditReport.com.

• Confirm whether the payday loan is listed on your report(s), along with what specific activity has been reported. 

• Verify that any payday loan-related collection accounts — and their outstanding balances — are accurate.

• Try negotiating with the payday lender or debt collector. Depending on the circumstances, they might agree to resolve the debt for less than what you owe if you offer to pay right away. 

• No matter the answer, aim to pay off a delinquent payday loan as soon as possible. That status change might improve your credit score.  

• The same goes for outstanding collection accounts. Repaying in full could reduce the damage to your credit score.

What To Know Before Taking Out a Payday Loan

• Ask the lender if they report loan activity, positive or negative, to the credit bureaus.

• Confirm whether they perform a hard or soft credit check. Prioritize lenders who won't affect your credit.  

• Inquire about extended repayment plans (EPPs), which could give you more time, often for no additional cost, if you run into trouble repaying.

• Find out if or when the payday lender might sell an outstanding loan to a collection agency. Creditors typically wait three to six months before doing so.  

• Consider payday loan alternatives, such as credit union short-term loans and personal loans for bad credit, which can help you build credit, or earned wage access (EWA) and cash advance services like Instacash® from MoneyLion, which charges 0% interest or mandatory fees*. 

“A borrower can best avoid a negative impact on their credit score by viewing payday loans as an emergency short-term solution,” Gillooly said. “They also need to have a solid plan on how they will be able to pay the money back.” 

Frequently Asked Questions

How can you check if a payday loan is hurting your credit?

Pull your free credit reports from Equifax, Experian and TransUnion at AnnualCreditReport.com. Look for any collection accounts, charge-offs or public records tied to the payday lender or a debt collector. If you see one, that account is likely hurting your score.

How long does a payday loan stay on your credit report?

A payday loan that goes to collections can stay on your credit report for up to seven years from the date of the first missed payment, according to the Fair Credit Reporting Act. After seven years, the account should fall off automatically.

Does paying off a payday loan remove it from collections?

No. Paying off a payday loan in collections does not remove the account from your credit report, but it does update the status to paid or settled. A paid collection looks better to lenders than an unpaid one, and some newer credit scoring models ignore paid collections.

Do payday loans build credit?

Almost never. Most payday lenders do not report on-time payments to the three main credit bureaus, so paying the loan back as agreed will not help you build credit history or raise your score.

Can a payday loan lower your credit score even if you pay it back?

In most cases, no. If you repay the loan on time and the lender never reports to the main bureaus, your score should not change. The risk comes if you miss payments and the debt is sent to collections.

Can a payday loan raise your credit score?

A payday loan could raise your credit score on the off-chance that the payday lender reports positive loan activity to the major credit reporting agencies. However, most payday lenders don’t. As a result, payday loans rarely help you rebuild or build credit. 

Do online payday loans show up differently from storefront loans?

Online payday loans and storefront loans typically follow the same standard operating procedures. In this case, they rarely report loan activity to the major credit bureaus, and so these loans are unlikely to directly show up on your credit report.

Key Terms

• Payday loan: A small short-term loan, usually $500 or less, that’s typically due on your next payday and often comes with very high fees and APRs.

• Credit report: A record of your credit history, including loans, payment history, collections and other account details lenders may review.

• Hard credit inquiry: A lender review of your credit report when you apply for credit. It can appear on your report and may slightly lower your score.

• Collection account: A debt sent to a collector after missed payments. It can show up on your credit report and hurt your score for up to seven years.

• Subprime credit bureau: A specialty reporting agency that tracks high-risk or nontraditional borrowing, like payday loans, outside the three main credit bureaus.

Sources:

• Consumer Financial Protection Bureau: What is a payday loan?

• Consumer Financial Protection Bureau: What is a credit report?

• Consumer Financial Protection Bureau: What is a credit inquiry?

• Consumer Financial Protection Bureau: When can a debt collector report my debt to a credit reporting company?

Summary generated by AI, verified by MoneyLion editors

Melanie Grafil, CFHC™ contributed to the editing of this article.