3 Aug, 2022

Credit bureaus are reported of the necessary information by payday loan companies. This includes information about paying your loan on time, late repayments, your loan being in arrears, or not paying the loan at all. 

The major credit reference bureaus or agencies in the United States of America are TransUnion, Experian, Equifax. They receive all the necessary information in real-time from payday lenders, this gives future creditors and lenders of all types of financial products to have access and share information while making important lending decisions. 

For example, if a customer has paid off three loans recently, it is advisable to fund them in the future, however, a borrower with loans in arrear is risky to lend money. 

This guide will explain why and how payday loan companies report the necessary information to the credit bureaus. 

Key Points:

  • Keep in mind that the payday loan providers operating in the US will report every information on your loan or application to the credit bureaus. 
  • Any information will enable future companies to understand whether you’re a risky or safe person to borrow or lend money from. 
  • A small fee is paid by payday lenders to access the available information from credit bureaus as a routine of the credit checks done. Information is also sent from the payday lenders to the credit bureaus. 

How Do Credit Bureaus Work?

The credit bureaus have all the necessary credit information regarding a customer or an individual once they turn 18. 

These credit transactions are either transformed into a credit score or recorded on an individual’s credit report. Every time a lender performs a ‘credit check’ they can access this information on a customer. Lenders will be charged a fee of $3 every time a credit check is performed.

A customer’s application will be accessed by a traditional payday lender in California or any other state, in order to run a check using the information from a credit bureau. It will then be decided whether you’re eligible for a loan or not. 

Why Do Payday Lenders Report Information To Credit Bureaus?

Although payday loan companies get the necessary information from major credit bureaus, information is also sent to them, making it ‘reciprocal’. 

This Information Includes:

  • Whether or not an application was made, a hard or soft credit search was conducted on the same
  • Whether an installment or loan repayment was done on time. 
  • If a loan was repaid or not and whether it is in arrears now
  • If any arrangement has been made for debt collection.

The primary reason for bureaus to have this kind of information is to make better decisions while lending money to an individual. A lender can access real-time information to check whether or not recent debts are paid by a customer or they are in arrears. This will help them create an informed decision regarding offering credit or finance. 

A borrower who is unable to make existing payments can be initially declined a loan, however, this can prove to be beneficial because they won’t be burdened with too many loans or additional finance, something they can’t afford.

What Kind Of Information Do Credit Bureaus Hold?

The personal information available with credit bureaus include –

  • Full Name
  • Address
  • Any open or paid financial transactions like loans, credit cards, cell phone, utility bills, and mortgages.
  • Any joint account or someone you’re linked with financially
  • Credit score
  • Recent loan enquiries
  • Any arrears, court orders, or bankruptcies

How Long Do Credit Bureaus Hold Information?

Credit bureaus hold on to information permanently, however, certain things are removed after a couple of months or years. Any inquiries made for a loan, i.e, a basic application will be removed after a few weeks or maybe months. Information like bankruptcy and court orders will stay on an individual’s file for as long as 6years. 

The positive thing about credit reporting and credit score is that you will see a change in your financial status. When you fall back on your loan repayments, your credit score will take a hit but  timely loan payments, over a period of time, consistently will improve your credit score. 

Some people have a query about payday loans and whether it will boost your credit score. Although this is possible and will have an impact on your credit score, it is not advisable to opt for high cost credit. 

If you want to improve your credit score, pay off your debts on time. Borrow what you will be able to afford. Close down loans or cards that you don’t need. You should also try to dissociate joint accounts or bank accounts with someone who has bad credit.

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