Loans That Don’t Help Credit Scores

When attempting to build up credit scores, people often look to loans to help them move closer to their goals. But not all loans are created equally, and some can actually do more harm than good. Payday loans – aka “cash advance” loans – aren’t likely to help move credit scores higher, and the risks associated with these high-interest loans far outweighs any potential future benefits. Payday loans are considered “single repayment loans,” and are not reported to credit reporting agencies such as Experian or TransUnion.

According to a recent MSN article, the Consumer Financial Protection Bureau found that nearly one in four payday loans are re-borrowed nine times or more, while Pew found it generally takes borrowers roughly five months to pay off the loans and an average of $520 in finance charges.

“It’s normal to get caught in a payday loan because that’s the only way the business model works,” Nick Bourke, director of consumer finance at Pew Charitable Trusts, tells CNBC Make It. “A lender isn’t profitable until the customer has renewed or re-borrowed the loan somewhere between four and eight times.”

To learn more about the risks and myths of payday loans, as well as to get some tips on building credit smartly, check out the full story.