Cash advance loans, also known as payday loans, allow customers to get a cash advance and pay it back to the lender when they receive their next paycheck. These loans are particularly helpful during those times when unexpected expenses arise, such as an emergency vehicle repair or medical bill. To obtain a cash advance loan you do not have to have excellent credit and most of these lenders do not run a credit check. While paying back a cash advance loan does not normally raise your credit score, there are ways that it can help you obtain credit in the future.
No Negative Marks
Even though a cash advance loan is not based on your credit score, it can have an impact on it. If you go into default with a payday loan, this will most likely be reported to the credit bureau and your score may drop.
However, if you pay the loan back on time according to the loan agreement, there will be no negative marks against your credit. The fewer negative marks you have, the better your credit score will be and the more likely you are to be approved for a loan with other lenders.
Those who have never been approved for any type of loan before may also benefit from getting a cash advance loan. This gives new borrowers experience with how the loan process works. If a borrower pays back his cash advance loans properly, there is a good chance that he may continue to do so in the future.
Learning how to borrow money responsibly is good practice for when larger loans are needed from other financial institutions. Payday loans can be a good starting point on the path to keeping good credit and this increases your chances of being approved by other lenders.
Good Credit References
When applying for a loan with a bank or other large financial institution, you may be required to list credit references on your application. Payday loan companies normally keep their customer's borrowing records on file for several years. If you have a good history of paying back your cash advance loans on time, this will be noted in your file.
You can list the payday advance company as a credit reference on your application. If the other lender contacts them, the cash advance loan company will confirm that you have excellent credit with their company. This may also help you get approved for a loan with the new lender.
While most cash advance loan companies do not offer high dollar loans, paying these smaller loans back on time is still very important. In the long run, how well you pay back small loans can affect your eligibilty for obtaining larger loans.