If you don't have credit or are saddled with a bad credit score, it can be nearly impossible to find financing. Payday loans — that is, short-term, high-cost loans that give cash-strapped consumers money they need — are often considered an exception to the rule. And if you're thinking of applying for one, you won't have to worry about your subpar (or nonexistent) credit.
"The typical payday loan borrower has a relatively small financial footprint and limited credit history, and a traditional score is not necessarily an indication of their ability to repay the loan," Amy Cantu, a spokesperson for the Community Financial Services Association of America, an organization that represents the small dollar, short-term lending or payday advance industry, said via email.
That's not to say payday lenders don't perform any type of underwriting or credit check. While these companies don't typically pull a copy of your traditional credit report from one of the three major credit bureaus — Experian, Equifax and TransUnion — many screen applicants, often via speciality subprime credit bureaus, such as Clarity Services, Teletrak and Microbilt.
"Companies in this sector look at a borrower's gross monthly income, or GMI, length of time with a bank account and employment while also acquiring information about a borrower's expenses and credit history from alternative bureaus and state databases," Cantu wrote. "They then make a determination about a borrower's ability to repay and the potential loan amount."
You can find a list of specialty subprime credit bureaus, along with other alternative credit reporting agencies, on the Consumer Financial Protection Bureau's website. The CFPB also lists information to request a free copy of your credit report, should you wish to review it.
Remember, just because you can get a loan with bad or no credit doesn't mean that you should. As we've mentioned before, payday loans generally tout high interest rates and fees since these loans are considered high-risk), so you may want to consider other alternatives before signing up.
If a payday loan seems like your only option, it's a good idea to work on improving your traditional credit scores so you can secure more affordable financing in the future. (You can see where your credit currently stands by viewing your two free credit scores, updated each month, on Credit.com.) In general, you can fix your credit by disputing any errors on your credit report, identifying credit score killers and coming up with a game plan to address those issues.
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