How Short-term Loans affect your Credit Score?

2 mins read

We’ve all been in the position where being able to borrow just a little bit of cash would make a real difference to our short term finances. Whether this is because you’ve had an unexpected cost, such as the washing machine breaking, or this month’s budget plan was just a little off, there is help at hand.

Despite the stigma attached to the short-term lending industry a lot of people realize that they can be useful to those in trouble and stop them from racking up unauthorized overdraft charges or late payment fines.

These types of loans are also taken out by people who have a less than perfect credit rating which stops them from being able to take advantage of other types of finance such as a bank loan.

How Short-term Loans affect your Credit Score?

Many people with a poor credit score are desperate to improve it and therefore gain lower interest rates or increase the limit on their lines of credit. Having a poor credit score can affect big decisions such as being approved for a mortgage, car lease, or even a new job, so having a good credit rating is vital.

The question is – can taking out a short term loan really improve your credit score?

The good news

Well, the good news to those of you who have a poor credit rating is yes, short term loans can improve your credit rating if they’re used correctly.

If you find yourself without the funds to pay bills, rent, or other expenses, taking out a short term loan can help you cover the costs without the companies you’re paying ever needing to know you don’t have the money.

By paying off your financial burdens promptly and on time your utility company, landlord, and anyone else you’re paying back will see you as a responsible and reliable customer.

How does this improve your credit rating?

Credit scores are calculated by looking at the number of loans you have taken out and repaid, and your history of successfully repaying loans off in monthly instalments. As short term loans usually have to be repaid within 30 days successful repayments of this type of loan will show a lender that you can be trusted to repay a larger, longer-term loan.

Being able to pay off a loan in a short amount of time will prove to lenders that you are not irresponsible with loans and that you do not take out loans that you cannot pay back relatively quickly.

By becoming more trustworthy in the eyes of lenders you will be able to access higher amounts of credit, longer-term rental possibilities on items such as houses or cars, and the chance of being approved for a mortgage when previously your credit score would have made it impossible.

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As long as you know you can pay back the borrowed finance, plus interest, on your next payday short term loans could give your credit score a much-needed boost. But if you can’t pay it then it can be disastrous for your credit score. And that’s all we need to discuss on how short-term loans affect your credit score.


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