Pay advance apps and your credit score

By   |   Verified by Andrew Boyd   |   Updated 28th March 2022

  • How pay advance apps differ from payday loans.
  • Ways in which payday loans could impact your credit score.
  • How pay advances are less likely to reduce your credit score.

Pay advances, accessed through apps like Beforepay, MyPayNow and CommBank AdvancePay, are quite different from traditional payday loans. They involve paying fees rather than interest charges, involve accessing cash you have probably already earned but not yet received, and often work out to be much cheaper.

But does a pay advance affect your credit score in the same way as a payday loan? Since your credit score is an important number that lenders consider when assessing you for a loan, including a home loan, It’s worth knowing how pay advances affect it.

Before you sign up, you can compare pay advance apps on Finty.

How a traditional payday loan can reduce your credit score

  1. Hard credit check. As with any type of loan – including personal loans and car loans – payday loan lenders will ask a credit bureau to supply your credit score and credit history when you apply for a payday loan. This is known as a ‘hard enquiry’, and each application will temporarily reduce your score by a few points. Making lots of applications can add up to a big reduction in your score.
  2. Entry in your credit report. The loan itself, if approved, will also appear in your credit file. This is where the type of loan matters. Although, on the surface, a payday loan may be treated in the same way as a personal loan in your credit file, the mere fact that you have resorted to a payday loan may make you appear risky to other lenders in the future. It could, for example, later affect your chances of being approved for a home loan.
  3. Greater probability of default. Applying for a payday loan may mean that you are having financial difficulties. You may be late with repayments or even default on your loan. Lenders will report this, and it will have a big negative impact on your score.

How pay advance apps operate differently

Pay advance apps have their own way of assessing your suitability for an advance, and it doesn’t usually involve a hard credit enquiry.

Beforepay says:

As part of our screening and verification process, we have our own assessment criteria we use that is based on historic spending behaviour. This includes details like your income and expenses to determine your eligibility.

MyPayNow says:

There are no credit checks conducted against your credit file. Therefore, your future credit applications will not be hindered in any way by your MyPayNow use.

But both stop short of saying that they will not report any late payments or defaults to a credit bureau. However, since repayments are automated to occur immediately your next pay hits your bank account (and with some apps may be made directly by your employer on your next pay day) the likelihood of late payment or default is much reduced.

Bottom line

Pay advances are much less likely to impact your credit score than payday loans.

However, if you need to resort to pay advances regularly, you may need to reorganise your finances by increasing your income (e.g. with a side hustle) and trying to reduce your expenses.