Do you know what factors contribute to your credit score? Do you know what hurts it? If you don't learn anything about credit, you need to know the answers to those 2 questions. Then you can understand when getting a payday loan for a short term financial emergency is better than a credit card advance.
Here's what makes up your credit score and the weight of each:
- 35% is your payment history
- How many late payments have you made? Late payments are bad.
- 30% is the total amount owed
- How much money do you have available on your credit cards and lines of credit?
- How much of the total available have you used? Using over 30% of the total available is bad.
- 15% is length of credit history
- When did you get your first loan or card? The longer your history, the better.
- All reported loans count here
- 10% is new credit
- How old are your accounts?
- Have you taken out new loans recently? Trying to get or getting new loans can count against you.
- 10% is type of credit in use
- Mortgages and student loans count much less than credit card debt.
Credit card debt is considered a negative type of debt. You can see where taking new loans for an unexpected emergency will change your score in a negative way. A major factor to consider when choosing a payday loan is that it will not affect your score. It usually is not reported to credit bureaus and if you go with a company that does not perform a credit check, a payday loan will not create a flag in your history that you have taken out another loan. Those are two huge pluses.
A payday loan is paid back either on a short term basis (usually the next payday) or with scheduled payments over time. Either way, the benefits are that you know what your payment is, you have a set time to pay it and it will be paid off during that time. A charge to a credit card can boast none of those.
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