The Impact of Pay Day Lending on your Credit Score


This month we are focusing on the impact of pay day lending on your credit score and future borrowing. Pay day lenders are a tempting option for some with the lure of fast cash and an easy repayment option. However, the reality is very different.

Lynn’s Story

Here’s Lynn’s story:

“I turned to pay day lenders when my husband’s income changed. He works as an estate agent and when he moved to a new job he found that some month’s his commission didn’t reach the income that it had before. The first month it happened, we just managed to cover all our bills but then had nothing left for the rest of the month.

We have 4 children and so as well as food shopping and petrol to get us both to work, there were lunch monies to pay for, swimming lessons and all the things that come every month with having a busy family life. We simply couldn’t make ends meet and because we had a loan from our bank already and needed the money fast, we didn’t know where else to turn. I found the pay day lender online and literally completed my application and got the money in my bank that same day. It was so easy and I felt like it was a life saver. 

The Problem

The problem was that the next month because we had to take that chunk out of our income again it meant we were short. We borrowed again. This continued and I even had the pay day lender app on my phone which made things a whole lot easier.

Not only were we borrowing every month but a few times, when my husband’s income was down, we weren’t able to pay the full amount back. The interest was like having another loan. I just couldn’t believe how high it was.

Finally, I went to see our bank and ask if they could help and was shocked to find out that because we had used a pay day lender it had affected our credit score!”

Lynn’s story isn’t an isolated one. Many people turn to pay day lenders because they are in need of money fast and because it is just until the next pay day it seems that it won’t be a problem. As Lynn’s story reflects, using a pay day lender can affect your credit score.

High Risk

There is no hard and fast rule on whether using a pay day lender will or will not affect your credit score because financial organisations have different lending criteria. However, what we do know is that it can affect borrowing from banks, mortgage and other lenders.

Some organisations deem that using a pay day lender means you are a high risk borrower and so will not lend to you, whereas others may simply charge a much higher rate of interest. 

Ask James

James Jones is Experian’s Head of Consumer Affairs. Experian is the most widely used credit check agency for lenders in the UK. ‘Ask James’ is a section of Experian where members of the public can ask James pretty much anything related to credit ratings.

Recently someone asked James whether payday loans damage your credit rating. You can read James’ answer here


We encourage anyone considering a pay day loan to consider all options available to them. Take advice from your local Money Advice Service or local Citizens Advice Bureau if you are in debt. Contact your own bank to discuss your financial problems openly to see if they can help you.

The reality is that although pay day loans are a fast and easy way to access cash the impact of pay day lending can and very much does affect future borrowing and your credit score.

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Affordable Credit for All

We are delighted to be part of a new campaign called Affordable Credit for All. Around ten million people in the UK are excluded from obtaining credit at reasonable rates because they are, or have been, in negative financial situations, usually not of their own making. This results in many individuals having to turn to loan sharks, very expensive payday loan companies or doorstep lenders to access credit. Over the past five years, the amount of money people have borrowed through payday lenders in the UK has boomed from £900m to £1.8bn. It is now estimated that 2million people use payday loans. 

Nottingham Credit Union, along with credit unions around the country offer an affordable lending solution – people are able to borrow money whilst still being in charge of their finances, as they know how much to repay and when. The interest rate on a loan from a credit union is much lower than payday lenders, doorstep lenders and loan sharks. In the UK, there are over 1.6million credit union members who were lent over £5 million during 2015.

We are working alongside NAN who offer advice to people on where they can get affordable credit from.  This partnership means that people are informed about credit, and will prevent them from sinking further into poverty and debt by being educated about affordable lending ahead of borrowing.   

This new campaign around Affordable Credit for All believes in raising awareness about affordable lending and credit unions, so that individuals have all the information and choices to make the correct decision when seeking to access credit to ensure that they are not stepping into a deep journey of debt and poverty.

We are proud to be part of the Affordable Credit For All campaign and support the belief that by working with other organisations that believe in financial inclusion and a need for affordable lending –more can be done to help the ten million people in the UK who are currently excluded from obtaining credit at reasonable rates.

If you are in debt, please seek help from NAN or any other reputable advisory organisation/service. We can help with affordable and responsible lending, so please get in touch.

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