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Payday loans can help you to build your credit rating, however it is not recommended that they are used for this purpose. The short term loans can be high risk and are designed for individuals who need a quick injection of cash to stay financially afloat until their next payday.


How Do Payday Loans Work?


Payday loans are short-term loans that are typically due on the borrower’s next payday. They are designed to provide access to fast cash for borrowers who need it, but they come with high fees and interest rates. 

In order to obtain a payday loan, applicants need to be aged over 18 years old and earn a stable income of roughly $800 per month. Borrowers also need to provide proof of income and a bank account. The lender then deposits the loan amount directly into the borrower’s bank account, and the borrower agrees to repay the loan on their next payday.

Common uses of payday loans include to pay for auto repairs, home bills, medical fees, dental costs, rent and utility payments. They should not be used for frivolous spending such as shopping or partying, or to pay off any existing loans as this can lead to future debt issues.



Do Payday Loans Build Credit?


Using a payday loan can improve your credit score. If you take out a loan and pay it back on time, as well as the extra interest and fees involved, then you could see a boost in your score since you would be perceived as a reliable borrower who has paid their bills back on time.  Payday loans may also offer a good option for those with bad credit scores who are looking to improve it as this type of loan is one of the few borrowing options available for those with poor credit.

In spite of this, payday loans are not designed to help you improve your score. They offer a quick and easy way to finance emergency bills and unexpected payments that you had not budgeted for. 

Furthermore, while most lenders report payday loans to the credit bureaus, some do not. This means that even if a borrower repays the loan on time, it is not 100% guaranteed that it will improve their credit score.

As well as this, payday loans can actually harm a borrower’s credit score if you are not careful. If a borrower is unable to repay the loan on time, the lender may turn the debt over to a debt collection agency or take legal action against the borrower. This can result in a negative mark on the borrower’s credit report, which can lower their credit score and make it more difficult to obtain credit or favorable terms in the future.


What Are Alternatives To Payday Loans For Building Credit?


There are several alternatives to payday loans that may be better for building credit. These include:


Secured Credit Cards

Secured credit cards are a type of credit card that require a security deposit. The deposit acts as collateral for the credit limit, and the borrower can use the card to make purchases and build credit. If the borrower makes on-time payments, the lender may eventually return the security deposit and increase the credit limit.


Credit-Builder Loans

Credit-builder loans are designed specifically to help borrowers build credit. These loans typically have lower interest rates and longer repayment terms than payday loans, making them a more affordable and less risky option.


Co-Signed Loans

Co-signed loans are loans that are co-signed by a friend or family member with good credit. This can help borrowers with limited or poor credit history obtain a loan and build credit.


Alternative Credit Reporting

Some alternative credit reporting agencies, such as Experian Boost and UltraFICO, allow borrowers to add non-traditional payment information to their credit report, such as rent payments and utility bills. This can help borrowers build credit without taking on additional debt.


What Are The Safest Ways To Improve Your Credit Score?


There are also some quick and easy ways to try to improve your credit score without borrowing money. This includes having a thorough check of your credit report to make sure that there are no errors or mistakes. If there are, you should dispute them straight away with either the credit reporting agency or the lender involved to help rectify this and boost your score. 

Another option is to make a commitment to pay any outstanding debts you may have as quickly as possible. Making an effort to always pay upcoming bills on time will also help to improve your rating as you will be perceived as a more trustworthy and reliable borrower.

Joining the US electoral register can also help to improve your rating as by registering to vote, you are confirming your official identity with a legal account of your name, address and date of birth which can be accessed by banks and loan lenders. Not only will this improve your score, but it can also increase your chances of being approved for loans in the future since it would give lenders peace of mind that you are a registered individual.





In conclusion, payday loans are not designed for building credit. While some lenders may promote payday loans as a way to build credit, this is not guaranteed and in the worst cases it can actually harm a borrower’s credit score if the loan is not repaid on time. Borrowers should therefore only take out a payday loan if they need the money to pay for emergency expenses, with the possibility it will boost their credit score as an added bonus.

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Justine Gray

Justine is an expert writer with a wealth of experience in the financial world. In particular, she enjoys writing about consumer finance and household income. Read her articles for useful advice and top tips on how to save money and lots more.