Many people have been facing financial turbulence in the last few years. The economy has still not recovered completely since the Covid pandemic. Meanwhile, the cost of living has also skyrocketed.
A payday loan can offer financial relief, especially if you are facing a short-term financial problem. It can be a quick fix. However, these loans can be beneficial in another way they can even help you rebuild credit.
The world moves on credit. Big and small businesses need credit for growth. Student loans are necessary for college fees. We need a mortgage to buy a home and a car loan for a new automobile. But you can’t get credit without a good credit score.
How Credit Score Impacts Us?
Credit rating agencies evaluate our creditworthiness and assign a credit score for each person. This three-digit score helps determine whether your loan application will be approved or declined.
Your credit score can even determine how much you must pay for insurance and even the rent for a home. Many insurance companies, employers, and landlords will check your credit score before deciding.
A good credit score can make a huge difference, even if you don’t want a loan now. Bad credit will show that you are a “credit risk”. If you need a loan and if you are deemed as an “increased risk”, then you will be charged a “risk premium”, which will increase the repayment cost.
This Approach Can Improve Your Credit Score
A payday loan is usually a small credit worth just a few hundred dollars. Repayment is also easy because of the small amount. If you repay on time, you can show the creditor that you are committed to meeting your financial obligations and have the ability to pay back loans.
Many lenders will report this to the credit agencies. They will take note of this, and subsequently, your creditworthiness or credit score will improve.
Many banks will deny loans to those with poor credit history. Often, a payday lender is the only reliable funding source that will issue the money when you need it.
They agree to lend the money as the advance is only for a short term, and the amount is also less. It can only be for a couple of weeks. Also, the loan amount is usually within $1500. A payday lender will thus agree to the loan because they know that the risk is less.
There are only a few conditions –
- You must be a citizen with valid documents
- A bank account where the money can be transferred directly
- You need to have a stable source of income.
Qualification is easy. If you meet the above criteria, then you can get a payday loan, no matter what your credit score is. Repay on time, meet your financial obligations, and your credit score will improve with time.
It Is Risk-Free
A payday loan is a relatively risk-free credit option. The loan amount is small, as it is usually between $500 and $1500, which makes it manageable. The loan term is just for a couple of weeks maximum. How can a short-term loan of $800-1000 for two weeks harm you?
Payday loans have received a lot of bad press recently. Authorities have imposed many restrictions. However, this is a legal credit plan that provides people with the cash they need in a financial emergency. Often, this is the only option for those with poor credit. And it also offers a way to repay on time and rebuild credit.
Despite the bad press, millions of people are still approaching payday companies. According to the findings of The Future Finance research, a third of all students depend on payday loans, credit cards, and overdrafts to fund their university education.
So go ahead and take a payday loan if you are denied any other credit or if you have a poor credit score. Repay the loan and take another one. You are likely to see an improvement in your creditworthiness in a short time.
The Benefits of a Better Credit Score
Here are some gains you will enjoy if you can improve your credit score –
- More negotiating power: With a better credit score, you can negotiate to bring down the interest rate on a new loan or credit card.
- Higher limits: Lenders will agree to give you more money when your score is good, especially if the score is improving. They will feel confident that you can repay on time.
- Better deal from auto insurers: Automobile insurers charge a higher rate to people with a poor credit score. According to them, these people file more claims. Show your improved score and bring down the insurance premium price. You will pay less for insurance.
- Easier apartment and rental house approvals: Many landlords now access credit scores to screen 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 a security deposit: Mobile phone service providers may not give you a contract if you have a poor score. As a result, you have to opt for a pay-as-you-go plan, which is costlier. On the other hand, a good score can give you a hundred-dollar discount on a new phone on signing the contract. The security deposit can also be waived.
- Don’t pay a security deposit on utilities; It can be $100 and even $200, which can be expensive when relocating. You can avoid paying the deposit if your credit score is higher.
There are many pitfalls of a poor credit score higher interest, fees, and rent. They can set you back. Rectify your score to avoid this. Despite the negative publicity, the payday loan instrument is a great tool as it gives people a second chance to prove that their financial condition is improving.
