How Payday Loans Can Help You Rebuild Credit

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The economy works on credit. In other words, you need good credit for virtually everything – a student loan for paying the college fees, mortgage loan for the house, a car loan for that new automobile. Good credit will be the make-or-break difference.

How the Credit Score Affects Our Lives

All of us have a credit score, which determines our “creditworthiness”. There are credit rating agencies that evaluate and come out with these scores. It is a three-digit score that is used to determine whether your loan applications are going to be approved or rejected. But creditworthiness can sometimes go even beyond that. For instance, the credit score is used to decide how much you pay towards insurance, whether you can rent that nice apartment, and even whether you will get that job or not. Yes, employers, landlords, and insurers can all access your credit score before deciding.

A good credit score can thus make a huge difference, even if you are not actively seeking a loan at this time. Bad credit will indicate that you are a risky bet. Good credit, on the other hand, is an indicator that your life is on the right track. It’s that important.

It would be worse if you actually need finance. As per financial theory, if you are deemed as an “increased risk”, then the creditor will charge a risk premium over the price at which the money is given to you. So either the lender will deny you the loan, or they will give you the money, but at a higher interest rate than someone who has a better score.

Here’s a Unique Way to Improve Your Credit Score

One good way of improving your score is by showing them that you are committed about meeting your financial obligations and can actually pay back the loaned amount. But that is easier said than done, because if the banks deny you the loan in the first place, how will you ever pay it back? Even if you get the money, it is in such a high interest rate, that it becomes very difficult to manage everything.

So with poor credit, there is hardly anything you can do to improve your score.

But wait! There is one way that works wonderfully well – payday loans.

A payday lender is the only creditor that will never deny you a loan even if you have a poor credit score. In fact, payday lenders don’t even consider traditional credit scores. They can afford to do this because payday loans are short-term cash advances where you have to make the repayment on the next payday. It’s for 2-3 weeks max. Plus, the loan amount is also rarely above $1500. Because of these two reasons, there is rarely any risk for the lending agency.

This means that you can get a payday loan very easily. There are just a few conditions – you need to be a citizen of the United States, you should have a bank account where the money can be transferred directly, and you should have a stable source of income. So you see, almost everyone qualifies for a payday loan.

Improve Your Credit Score With Payday Loans

If you meet the above criteria, you qualify for a payday loan, irrespective of your credit score. This gives you a chance to repay the money, show your financial commitment, and score a few cookie points with the credit rating agencies.

While we won’t claim that there is a direct relation between the two, and it is illegal to do so as well, but having said this, it is a fact the agencies do take note that you were able to repay within the due date. Nobody can deny this. No legal payday lender can claim to submit the information to the rating agencies. This is not required as well. The agencies will get the information on their own that you have repaid on time. This is bound to reflect on your credit score.

So if you take a payday loan a few times, and repay on time, every time, then for all practical purposes, you have an even better chance of improving your creditworthiness.

The Risk-Free Game

A payday loan is among the best credit instruments to play this game, as there is hardly any risk for you. The loan amount is small (it is usually between $500 and $1500), and will thus be extremely manageable. The term is only for a few weeks as well. So how can an $800-1000 loan for a couple of weeks harm you?

So go ahead and apply for a payday loan if you are denied any other credit, or if you have poor credit score. Repay the loan and take another one. You are likely to see an improvement in your creditworthiness in a short time.

Payday loans have received a lot of bad press in recent times. The federal government and many states have imposed a number of restrictions as well. But these are legal and good loans that provide people the money they need in an emergency. It is the only place people with bad credit can turn to, because every other lending agency will turn them away, leaving them to approach the gray market, where they will be clobbered.

In spite of the bad press, millions of Americans are still approaching payday companies. According to The Future Finance research, about a third of all students in UK depend on payday loans, credit cards, and overdrafts to fund their university education. If in UK students depend a lot on payday loans and credit cards, the story must be same in US as well. People in Alabama took more than 2 million payday loans in 2015. It’s often the only choice in the Mississippi Delta, and many other parts of the country.

What You Can Achieve With a Better Credit Score

Think of all those good things you can enjoy once you have improved your credit score by paying back the payday loan.

You will have more negotiating power – Negotiate to bring down the interest rate on your new loan or credit card. Tell them you are receiving great offers because of your healthy score.
You will get higher limits – Banks will agree to lend you more money if your score is good, particularly if it is ascending. They will have the confidence in you because you have the ability to pay back on time.
Better deal from auto insurers – Automobile insurance companies use bad credit score against people to charge higher rates. They say those with poor credit file more claims. Show off your improving score and bring down the insurance premium price. Pay less towards insurance.
Easier apartment and rental house approvals – More and more landlords are accessing credit scores for screening tenants. It will damage your chances if the bad score was caused because of an outstanding rental balance. Bury that incident by showing an improving score.
Cell phone on contract without security deposit – When you have a poor score, cell phone service providers might not give you a contract. You must select a pay-as-you-go plan that is more expensive. With a good score, you can receive a hundred-dollar discount on a new phone when you sign a contract. The security deposit can also be waived.
Don’t pay security deposit on utilities – They can be between $100 and $200, and can be very inconvenient if you are relocating. Why pay, if you can avoid doing so? You won’t have to pay these deposits if you have a high credit score.

Higher fees, rent, interests and so on can add up quickly to cause a severe dent in your pocket. You can avoid this by rectifying your credit score.

Payday loans offer a great opportunity to do this. These loans give you a second chance to prove that your financial position has improved, and you are now in a position to meet your financial obligations.

So you see, a payday loan is not just an instrument that helps people fight immediate financial emergencies. These cash-advances can help us in many other ways as well.