Identification

Since nearly all payday loan companies do not perform a credit check, these short-term, unsecured loans usually have no effect on your credit score if you pay them off on time, Loans.com reports.

Considerations

Some companies may perform a credit check, so you should ask the lender to see if it does. Your credit score will decrease if the payday loan company checks your credit report, according to Loans.com. In addition, defaulting on the loan or late payments will show up as a negative mark on your credit history.

Function

Payday loans are only meant for emergency situations, Power Payday Loan website reports. There are several other, cheaper options available to help you get back to financial stability, such as refinancing and debt consolidation. Payday loans are geared toward those with poor credit histories.

Tips

Before considering a payday loan for non-critical spending, such as a better car or entertainment, rethink whether you really need the loan. Also, make you earn more than you spend. If you are overspending then you probably wont be able to pay back the loan, further ruining your credit, Loan.com reports.

Warning

Most payday loan companies require you to write a check for the loan amount in advance, which they then cash when your grace period ends. If you do not have enough money in the account when the checked gets cash, it will bounce and potentially affect payments to other services which do get reported to credit agencies, such as utility bills.

Source:

Loans.com: Does an Instant Online Payday Loan Affect Your Credit?

PowerPaydayLoan.com: Can Payday Loans Affect Your Credit?