Avoid Bounced Checks with Payday Loans

If you don’t have a mortgage or a credit card, it can be incredibly difficult to build a credit history. In fact, as many as 50 million Americans have no credit history. In an attempt to reach these consumers who fall under the radar, Fair Isaac, the company behind the FICO credit score, now offers a score based on bounced checks, payday advances, and rent-to-own operations. The company’s hope is to make credit a possibility for young people, new immigrants, and others who cannot otherwise get credit. However, with this new system of scoring come new and different ways to blemish your credit history. Before, if you bounced a check, no one was the wiser except for your bank and possibly the party to whom you wrote the check. On this new scoring system, a bounced check could mean serious damage to your credit, but payday loans can help stop this from happening.

About the New System

The new Fair Isaac system is designed to assess consumers who do not have credit history in the traditional sense. Rather than relying on the credit bureaus to assign these consumers a FICO score, the company will look at payday loans, companies that track people who bounce checks, and rent-to-own stores. Fair Isaac refers to these as “nontraditional” sources because they are not typical lenders. The company estimates that this system will enable it to assign scores to about half of the 50 million people without any real credit history.

The ultimate goal is to assist lenders in reaching youth, minorities, and recent immigrants who have little to no credit history. Immigrants are the primary target of the program, as credit histories from other countries do not show up in the databases of U.S. credit bureaus. If you fall into one of these groups, it would certainly behoove you to avoid bounced checks by taking out a short-term payday loan. This will help your credit by demonstrating your ability to pay back a loan and also avoiding the derogatory mark a bounced check would leave on your new credit score.

Build Credit the Old-Fashioned Way

You do not have to turn to these nontraditional avenues to establish credit if your credit history is sparse. Here are some tips on how to build your credit:

• Open a checking or savings account and use it responsibly
• Get a secured credit card
• Apply for an installment loan, such as a car loan or a personal loan
• Apply for a gas card or department store credit card

Additional Resources:

• Bounced Checks Can Trash Your Credit
• Fair Isaac