Impact of Short Term Loans on Credit History
The need for a short term loan often coexists with a bad credit history. People who have failed to repay their debts or loans on time will have a poor credit score. This will shut various financial options for them and they will have to look for unsecured short term loans. Financial mismanagement and liabilities often go hand in hand. Likewise, credit history gets impacted by every move you make, be it applying for any loan or repaying any debt. Just as your poor credit history impacts your chances of getting a short term loan, the application and approval of short term loan with its subsequent repayment or otherwise also has an impact on the credit history.
It is often perceived that because credit score doesn't matter much in cases of some unsecured short term loans, there is no impact of the loan on the credit history either. This is a wrong perception. Unsecured loans also get reported to credit bureaus or rating agencies. All data is available, from payday loans to traditional short term loans. It is true that secured loans get more importance and credit scores reflect more on the repayment of secured loans but mismanaging unsecured short term loans and not repaying on time or not paying the loan at all will also reflect poorly on credit history.
Unsecured loans of any type are a way for borrowers with bad credit to repair their credit history. It is a kind of redemption and hence an opportunity. Borrowers should not mismanage short term loans simply because they are unsecured. Repaying them timely and completing the repayment will have a positive impact on the credit score. Poor credit history will not get repaired immediately or completely but there will be slight improvements. Eventually, one can hope to get a secured loan once the credit history has improved substantially.