The Pachyy Editorial Team comprises a diverse and experienced team of writers, researchers and subject matter experts whose aim is to provide you with useful insights, guidance and commentary on all matters related to your personal finances.
Hey there! Just wanted to let you know that payday loan companies actually report your loan information to credit bureaus. They keep track of whether you’ve paid on time, if you’ve been late in repaying, or if you haven’t paid at all and your loan is in arrears.
In the US, there are three main credit reference agencies or bureaus: Equifax, Experian, and TransUnion. These agencies receive and share information from payday lenders in real-time. This means that future lenders and creditors for different financial products can access this information and make informed decisions about lending.
So, if a customer has recently paid off three loans, it’s a good sign that they’re reliable and may be a good option to fund. On the other hand, if they have two loans in arrears, it’s probably best to stay away.
This guide is here to help you understand how and why payday loan companies report to credit bureaus. Feel free to give it a read!
Important Points to Remember:
- Be aware that payday loan providers in the USA are required to report all the information about your application or loan to credit reference bureaus.
- Remember, this information helps other future companies assess whether you are a reliable individual to lend money to or borrow money from.
- It’s important to note that payday lenders pay a small fee to access information from bureaus as part of their credit checks, and in return, they also share information to maintain a reciprocal system.
Keep these key points in mind when dealing with payday loans in the USA.
Understanding Credit Bureaus: How Do They Work?
Have you ever wondered how credit bureaus work? Let me break it down for you in a friendly and helpful way!
Credit Bureaus play a vital role in collecting and storing all the credit-related information of individuals once they reach the age of 18. It’s like a virtual house for your financial records.
Whenever you engage in any credit-related transactions, such as applying for a loan or opening a credit card, those activities are recorded in your credit report. You can think of it as a comprehensive log of your credit history. This information is then converted into a credit score, which lenders use to assess your creditworthiness.
Whenever a lender needs to evaluate your creditworthiness, they perform a ‘credit check’ by accessing your credit report. Please note that this process incurs a cost of around $3 for the lender per check.
For instance, let’s say you want to apply for a loan from a payday lender in California or Texas. As part of their evaluation process, they will carefully review your application and use a credit bureau to check your credit history. This helps them make an informed decision on whether to lend to you or not, along with other checks they may perform.
Why Do Payday Lenders Report Information To Credit Bureaus?
Payday loan companies and credit bureaus have a reciprocal relationship, meaning they both share information with each other.
The information that payday lenders share with credit bureaus includes:
- Whether an application was made and a soft or hard credit search was conducted
- Whether loan repayments or installments were paid on time
- Whether a loan was not repaid and is in arrears
- Whether an arrangement to pay or debt collection plan has been set up
The main purpose of credit bureaus holding this information is to help all parties involved make better informed lending decisions. For lenders, they can access real-time information about a customer’s repayment history. If a customer is in arrears or has not repaid their recent debts on time, the lender knows to avoid offering them further finance or credit.
For borrowers who are struggling to keep up with existing payments, being declined a loan initially may actually be a positive thing. It ensures they are not given too many loans or additional finance that they cannot afford to repay.
What Additional Information Do Credit Bureaus Have?
- Your complete name
- Your current address
- Details about any paid or ongoing financial activities (credit cards, loans, mortgages, cell phone and utility bills)
- Information about any joint accounts or individuals you are financially associated with
- Your credit score
- Recent inquiries made for loans
- Any record of bankruptcies, arrears or court orders
How Long is Information Held By a Credit Bureau?
Most information is held by credit bureaus permanently, but there are some things that get removed after a few months or years. For example, any inquiries for a loan, such as a basic application, typically get removed after a few weeks or months. Court orders and bankruptcy, on the other hand, may stay on file for up to 6 years.
A positive aspect of your credit score and credit reporting is that your financial status can change over time. If you fall behind on loan repayments, your credit score will decline. However, if you consistently make on-time payments over a long period, your credit score will improve significantly.
Speaking of credit scores, some people wonder if repaying their payday loans promptly can boost their credit score. While this is possible and can lead to improvements, relying on expensive credit options is not a recommended long-term solution for boosting your credit rating.
If you wish to enhance your credit score, it is advisable to develop good habits such as paying off all your debts on time, borrowing only what you can afford, closing any unnecessary credit cards or loans, and disassociating from any joint accounts with individuals who have bad credit.