Do Payday Lenders Run Credit Checks?
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When you're applying for a payday loan, the idea of a credit check can seem daunting. You may be wondering: Will it impact my credit score? Do payday lenders even run credit checks?
Do Payday Lenders Run Credit Checks?
Yes, most payday loan lenders run a soft credit check. While traditional lenders often rely heavily on credit scores, payday lenders take a different approach by running a soft credit check to look for major financial problems like bankruptcy.
What’s the Purpose of a Credit Check for a Payday Loan?
The primary goal with any type of credit check is to verify the information you provide. For instance, the payday lender needs to confirm your identity, ensure you’re of legal age, and verify that you have a steady income. These factors help the lender feel comfortable that they are lending money responsibly and avoiding fraud.
Related: Can you get a payday loan without a bank account?
What Is a Soft Credit Check?
A soft credit check, also known as a “soft inquiry” or “soft pull,” is a type of background credit inquiry that doesn’t impact your credit score. It’s typically used by lenders, employers, or rental agencies to verify basic financial or identity information without delving into your creditworthiness in detail.
Unlike a hard credit check, which evaluates your entire credit profile, a soft check gives a quick snapshot that includes non-intrusive details about your credit history.
Is a Soft Credit Check an Actual Credit Check?
Yes, a soft credit check is technically an actual credit check, but it’s limited in scope and doesn’t affect your credit score. Think of it as a "credit check light"— it provides enough information to confirm your identity and assess basic eligibility but without accessing your full credit score or being visible to other lenders.
How Soft Credit Checks Work
When a payday loan lender performs a soft check, they work with credit reporting agencies to retrieve specific details that don’t harm or alter your credit score. These checks include basic information like:
- Identity verification. Confirms your personal details (e.g., name, address) to prevent fraud.
- Income verification. Validates that you have a steady income, a basic factor in loan eligibility.
- General credit history. Reviews payment history and open credit lines without impacting your credit score.
Why Soft Credit Checks Don’t Affect Your Credit
Soft credit checks are only visible to you on your credit report and don’t signal to other lenders or creditors that you’re applying for new credit. Because they don’t delve deeply into your credit history or require explicit permission, they’re considered low-impact and harmless to your credit profile.
Soft Credit Checks vs. Hard Credit Checks
It’s important to understand that not all credit checks are the same. Here’s the difference between the types of credit checks:
- Soft credit check. A soft credit check, also known as a soft inquiry, is a background check for essential information. It verifies basic identity and financial history details, such as lines of credit, payment history, and other public records. Importantly, a soft check does not impact your credit score and isn’t visible to other lenders.
- Hard credit check. Hard credit checks are typically associated with larger loans, like mortgages or credit cards, and are more comprehensive. These checks assess your credit score in-depth and can lower your score by a few points. Hard checks are visible to other lenders and stay on your report for up to two years.
| Feature | Soft Credit Check | Hard Credit Check |
|---|---|---|
| Affects Credit Score | No | Yes, may lower score by a few points |
| Requires Permission | Sometimes | Yes, always |
| Visibility to Others | Only you can see it | Visible to other lenders and stays for 2 years |
| Purpose | Verification and compliance | Eligibility for large loans (mortgages, car loans) |
The Benefits of Soft Credit Checks
Using soft credit checks benefits our customers in several ways:
- Protects Your credit score. Soft checks have no effect on your credit, keeping it safe.
- Streamlines the process. Soft checks are quick, allowing us to verify your information efficiently.
- Maintains privacy. Since soft inquiries are only visible to you, other lenders won't see you applied with us.
Does a Soft Credit Check Impact My Credit Score?
No, soft credit checks do not impact your credit score. Whether you’re renting a car, applying for an apartment, or submitting an application for a payday loan, soft checks have no effect on your score. They’re meant purely for verification and are invisible to other lenders.
Note: The content provided in this article is for informational purposes only. Contact your financial advisor regarding your specific financial situation.
