From mortgages to credit cards, credit checks are an important part of any loan application process. Creditors like banks, credit unions, and leasing companies use credit checks to verify the dependability of borrowers and to ensure to their underwriters that the debts will be paid on time and in full.
But, sometimes credit checks are unnecessary for some short-term loans like payday loans. Read on to learn the difference.
When Credit Checks Are Necessary and When They’re Not
First of all, what is a credit score?
A credit score is a number between 300 and 850. It is created by gathering statistics from a person’s likelihood to repay their debts. The higher the number, the better the credit score is viewed. In order to keep a high credit score, a person must have a history of always paying their bills on time and not having too much debt at any given moment.
What is considered a good credit score?
Though every organization has different standards for what is considered “good,” any person who holds a credit score that is at 700 or above typically does not have issues obtaining a loan. Of course, the higher the credit score, the more willing the lender will be to provide a loan or to offer a lower interest rate.
What is a credit check?
Credit checks are usually performed by companies when they are considering giving a person a substantial loan and is used to view the official credit score of an applicant. They typically perform the credit check for free and at no cost to the applicant.
There are three main credit checking bureaus, but the FICO (Fair Isaac Corporation) score is most frequently consulted. Simply put, the credit check is performed so the lender can be assured the borrower is able and willing to make his or her payments.
Are there other times a credit check is performed?
Believe it or not, applying for a large loan isn’t the only time a person’s credit score may be checked. Many believe a credit check to get an apartment is necessary along with a credit check to buy a car. Just like a lender in a bank, a landlord or a car dealership also want assurance that the person renting their property or buying their vehicle is able to make timely payments.
Credit checks are also typically performed whenever a person applies for a credit card.
Is it possible to obtain a loan without a credit check?
Yes, it is possible to obtain a loan without a credit check being performed.
When applying for a payday loan, a person’s credit score is never checked. Instead, the short-term lender will ask for a copy of the borrower’s most recent paystub. The idea behind a payday loan is that you will repay it in full (plus interest) after receiving your next paycheck. There’s no need to assess a borrower’s ability to repay over an extended period of time, as with other transactions.
Are any items checked when applying for a payday loan?
Because the lender is not checking the borrower’s credit score, it is necessary to bring a few items to the appointment. To apply for a payday loan, you’ll need:
- Most recent checking statement
- Driver’s license
- Social security card
- Check book
- Most recent paystub
Appointments for obtaining a payday loan tend to be short, allowing the borrower to quickly get the money that he or she needs. Most payday loan companies also abide by a rule of best practices or belong to a reputable association, so the borrower can be assured the process is safe and secure.
Payday loans are a great option for people who are in need of cash fast, but may not have the best credit score. If you have other questions on this topic, you know where to find us.