As a responsible lender we buy public data from a number of sources, including the major credit agencies. We're also obliged to provide information back to the agencies as part of this process.
Here's the view of two of the major credit agencies on how short-term loans can affect your credit rating.
“If a consumer takes out a payday loan and repays that loan on time the effect of such on the consumers credit rating could well prove positive. In some cases, if used responsibly, payday loans could help to improve the credit profile, especially those with either little credit history or those with a previous history of missed payments and arrears. However, it is difficult to generalise as the overall interpretation of the details contained on a consumer’s credit file is down to each individual lender.”
“Lenders create their own credit assessment scores and will include a complex selection of data sources within such scores. The lenders own experience based on the relative risk associated with different data, which includes previous loans and their performance, will be taken into account and could vary from lender to lender and for different subsections of consumers within each lender’s book.”
“Late and missed payments and large volumes of loans would have a negative impact on a consumer’s credit profile. However, for many lenders taking and repaying a payday loan will have a neutral or positive impact across large sections of their customer base. However, interpretation is at the individual lender’s discretion and some may view a payday loan as having a detrimental impact on some consumer’s credit worthiness.”
“If you repay the payday or short-term loan on time and in full then any effect on your credit rating could be positive.
“When lenders check your credit report they are looking for evidence that you are a responsible borrower. Repaying a payday loan on time and in full should therefore strengthen your case, because many payday and other short-term loan providers are now sharing customer records with Experian. Saying that, some lenders might see the fact that you’ve taken out a payday loan as a sign that your finances are under pressure.
"Importantly, lenders’ scoring systems are built by modelling actual customer data. As a result, if a particular lender’s experience is that customers who take out payday or short-term loans are more likely to miss their repayments, this will be reflected in their credit scoring. Actually, some of the lenders that use Experian for credit checks don’t currently differentiate between payday or short-term and other types of loans, so they wouldn't be able to discriminate anyway. So if you do take out a payday or short-term loan, just concentrate on paying it back on time and you shouldn't hopefully have any problems.”