Is a Payday Loan a Hard Inquiry?

Yes, a payday loan is considered a hard inquiry or hard search, so when you apply for a payday loan, it will leave a mark on your credit score for at least 2 years.

When you apply for a personal or payday loan, the lender will typically carry out a credit check to determine your eligibility. This is using one of the main credit reference agencies in the UK: Experian, Equifax and CallCredit. 

Upon checking your credit score, the lender will leave a mark, known as a ‘credit search’ and this is designed to let other potential lenders and finance companies know that you have applied for a payday loan or financial product.

This information is shared in real-time and is useful to other lenders, since having too many credit searches in a small space of time can suggest a desperate need for finance or that you have been a victim of fraud. Hence, lenders will approach with caution.

What is The Difference Between a Soft Search and Hard Credit Search?

When carrying out a credit search, the lender will pay a small fee to a credit reference agency such as Experian or Equifax to look into your credit report and see your financial records and history. This key information will help them determine if you are suitable for a payday loan or not.

The lender can choose whether they use a soft search or a hard search. The soft search allows them to see some basic information and therefore it is deemed ‘soft’ and vanishes from your credit report straight after. A hard search is a hard search footprint and will stay on your credit report for 2 years. A ‘hard’ search means that the lender can see a lot more information including how well you have paid off other credit cards, loans, phone bills, utilities and more.

Soft searches are commonly used for pre-approval and eligibility checkers, usually to give people an initial quote. Once confirmed, the customer will likely go through a hard search further down the line. You may also see soft searches for things like insurance quotes or background checks from work.

How Long Does a Hard Inquiry Stay on My Credit Report For?

A hard search inquiry will stay on your credit report for 2 years and then vanish.

Are Hard Credit Scores Bad For My Credit Score?

Initially, having one or two hard searches is not bad for your credit score. In fact, it is common to apply for things like mortgages and credit cards, so having up to 10 hard searches on your file at any time is quite natural.

If you have a large number of hard searches, it could mean that you have been making too many loan applications in a short space of time and some lenders will be very wary of this and think that you are in a desperate situation. 

Equally, if you have been a victim of fraud, the fraudster might be aggressively trying to take out loans on your behalf – and seeing all the hard searches means that future lenders will be cautious.

Hard credit checks are pretty harmless, but get too many and it can negatively impact your credit or look suspicious to future lenders.

Will Applying For a Payday Loan Be Bad For My Credit Score?

Simply applying for a payday loan will not hurt or damage your credit score. However, truth be told, some future lenders might be cautious lending to people who are taking out payday loans, because it looks like you need extra funds to see you until the end of the month.

Some mortgage lenders and brokers are very strict with applications that take out payday loans.

But if you are not taking them out too frequently and are paying them off on time, this will not affect your credit score or the result of any applications for future financial products.

How Do I Make Sure That Payday Loans Do Not Affect My Credit Rating?

If you take out a few payday loans per year and pay these off on time, this will not damage or negatively impact your credit score.

In fact, paying off payday loans on time may improve your credit score, because you are showing that you are able to manage loan repayments and follow payment schedules.

However, taking out multiple payday loans and paying them back should not be a technique to try to boost your credit score. This is not deemed healthy or practical and will be flagged by future lenders.

Would you like to check your credit score? The UK Government offers a credit report for just £2 here.