Can payday loans help my credit rating?

Payday loans are officially the fasted growing type of lending on the current market. They are a short term loan which offers you the ability to bridge the gap between pay cheques. But many people are now using them for more than just borrowing money, they seem to be using them as a way to boost their credit rating.


This graph by Bankrate demonstrates how the system works for credit cards when it comes to the interest rate you will receive.

As you are probably aware, to get a good deal on a payday loan you are required to have a decent credit score. The higher your score, the better deal you are likely to receive. You may also know that if you do not deal with any loan you take out correctly, it can damage your credit score.

People with bad credit can still take out loans, with lenders like Payday Bad Credit, but they may not be able to get a good deal on a more general loan or get one at all.

But, can taking out a payday loan can improve your credit score if you stick to the agreement, pay back the loan on time and in full, plus interest? Let us find out and take a look at some of the facts.

Search Footprints

When you apply for any type of credit, the lender will conduct a search on your credit file which will leave behind a ‘footprint’. The type of search which is conducted will indicate how it will affect your credit score.


If the search is a “soft search” then it is likely that nothing will happen to your credit score at all. This is because soft searches do not leave a long-term mark on your credit file. Soft searches are common practice for comparison websites that deal with insurance and loans. For guarantor loans, it is typical for a soft search to be carried out on the guarantor rather than the main applicant as they need to have a better credit score. Since it is the case that the guarantor is doing someone else a favour, so to have is vanish soon after is a fair system.

On the other hand, if a hard search footprint is conducted then it could be a different story. A hard search footprint stays on your credit file belonging for around 12 months. It is common for applicants for mainstream finance such as mortgages, credit cards and loans. Having too many of these on your file can result in your credit score being damaged.

Therefore, the application process for a payday can have implications on your credit score if. Furthermore, if you make too many applications, you will have more search footprints and having too many can drag your credit score down.

Will a payday loan improve my credit score?

In some cases, you will see no change to your credit score if you do everything which is asked of you. However, in other cases you may see that your credit score does improve if you get into the habit of paying back the loan on time, every time, you pay it back in full and you always comply with the terms and conditions. In doing this, the lender will record this and favour your credit score.


An interesting thing to think about is people who do not yet have a credit score. You may have a poor or non-existent credit score simply because you have never yet been in debt. This is very common for younger applicants who may never have taken out a loan or even a credit card. Therefore, they have no way of proving their credit-worthiness. If you take out a loan and do everything which is asked of you, you may start to see a credit score being build for you.

Implications of a payday loan

Having taken out a payday loan being present on your file may come with some implications that other lenders do not favour, and therefore, this will not help you with taking out future credit.

It is not uncommon for lenders and mortgage providers to consider payday loans as an indication of financial problems. They may use it as evidence that you are clearly starched for cash and therefore it would be too risky to lend to you.

Daniel is a loans expert based in London and has been working in the payday loans industry since 2010.