Having a recent payday loan on your credit history can make it much harder for you to get a mortgage at a good rate – or even at all!
If you have used payday loans, the rule of thumb for a mortgage application is to wait until at least 2 years have passed after your last payday loan was settled.
Before coronavirus, the usual advice was to wait one year. But from 2020 many mortgage lenders have tightened their mortgage requirements.
Even after the two year point, with payday loans showing on your credit record you should always go through a good broker. And you may still have difficulty if you had a lot of payday loans.
One way to try to clean up your credit record is to make a payday loan affordability complaint.
Payday loans make getting a mortgage hard
How do lenders know you have used a payday loan?
Mortgage lenders check your credit records when you apply. Most will do this before giving you an “agreement in principle” and they will then recheck more thoroughly before approving your actual application when you have found a property.
These credit checks don’t show exactly who you borrowed from. But they do show the sort of borrowing – loan, overdraft, credit card.
All three credit reference agencies in Britain – Experian, Equifax and TransUnion – show short-term high-cost borrowing such as payday loans separately from other loans. So a mortgage lender can see if you have used payday loans and when your last one was repaid.
Why do mortgage lenders care?
Mortgage lenders are a cautious bunch because they are giving you a large loan for 25 years or more. Although they have your house as security, they only make profits on lending where the borrower does not get into big financial trouble. So they want to weed out any applicants who may get into difficulties.
People in a good financial position don’t need to use payday loans – they have better ways of borrowing that don’t involve interest rates of 100% or more.
So using a payday loan, even if you repaid it on time, is seen by most mortgage lenders as a big warning sign that you had financial problems. And if that is recent they are probably going to reject your application.
As Which? says:
In a financial rough patch, you might turn to a payday loan, but doing so can have repercussions for years to come. Many lenders are unwilling to lend to someone with a payday loan on their record, even if it was fully paid off on time and from several years ago.
But doesn’t a repaid payday loan help your credit score?
Yes, it does. Making the payments on time for any sort of credit adds positive marks to your credit record. Unless you have a lot of big problems in your credit history, repaying a payday loan will tend to improve your credit score.
But your headline credit score isn’t a number that matters to a mortgage lender so this won’t help a mortgage application at all.
Instead they look at the details of all your borrowing and that includes whether you have used payday loans recently.
“Recently” – how long ago is ok?
Mortgage lenders set their own criteria here:
- some don’t like to see any payday loans at all, ever;
- a year used to be a common rule. This is what one reader said in a comment below this article:
My last payday loan was in November 2017 and I got a mortgage with [a high street bank] in January 2019.
I had waited 12 months to clear the “recent” impact of payday loans. - from mid-2020 there are indications that most high street lenders now want to see that your last payday loan was more than 2 years ago.
What are your options?
If you are some way away from actually applying for a mortgage, the implications are simple. Avoid payday loans!
You may feel that making the maximum savings into your LISA is the best thing to help with your house purchase, but if that leaves you so short of money that your credit record suffers or you have to get a payday loan in an emergency this isn’t sensible.
If you missed some payments or had defaults on payday loans
Here it isn’t just the payday loans that are the problem, it is the negative marks on your credit record.
If the payday loans you had were unaffordable, you may be able to complain and ask for a refund of the interest you paid. Getting some money back would be good for your deposit and it has the good side-effect that negative marks are usually deleted from your credit record!
This is one of the very few situations in which defaults can be removed before they drop off after six years.
So if your payday loan borrowing had defaults or late payments, this could clean up your credit file. Find out more at How to ask for a payday loan refund.
Has your lender gone bust?
If you borrowed from a lender which is in the early stages of administration (that’s like bankruptcy for a company) then you can make a claim to the administrators about unaffordable lending.
But if they have are in the late stages or have already been liquidated as a company, you can still get those loans removed from your credit record by asking the credit reference agencies to “suppress” them because the loans were unaffordable but you can no longer get the lender to remove them.
Did your payday lender say they would help your credit record?
Some payday lenders say using their loans will help your credit score. Paying any credit on time helps your credit score, that’s true…
But if the payday lender website or app doesn’t also say that payday loans show as a special category on credit reports and that some lenders, especially mortgage lenders, are likely to decline you if you have had payday loans, then that is misleading.
In this case, you can complain to the lender and ask them to remove the loans from your credit record entirely. If they refuse, send your complinat to the Finacial Ombudsman.
Take a screenshot of the misleading information to help your complaint. If you are sure you saw it, but the website has since changed, have a look at old copies of the website using the Way Back When Machine.
If you had payday loans & they were repaid on time
If the payday loans were repaid without problems, then:
- wait until the last one was repaid more than two years ago;
- after that point, talk to a good broker who will know which high street lenders are likely to approve your application; and
- also have a look at whether you can get a payday loan refund. It won’t help your credit record but it could boost your deposit.
Applying directly to a lender is taking a gamble, so it is always better to go through a reputable broker.
This doesn’t have to be a “bad credit” broker if the only problem on your credit record is a few payday loans. Two good brokers are London & Country, a fee-free broker that covers the whole market and Habito which has an online service.
Last updated in January 2021.
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Neil says
Hi Sara
I have 10 supressed accounts all payday loans and some had negative markers which really brought down my score. Are the supressed accounts still used in calculating the credit score or are they ignored.
Sara (Debt Camel) says
Can’t you tell?
A lender will no0t normally see the score you see anyway.
cyrilv says
As I look through my credit reports with more confidence by the month, I see only the last vestige of payday loans on just one report; Equifax still displays a closed Myjar loan that was settled in 2016 and is due to drop off in July. It has gone from Experian and TransUnion. Once it disappears from Equifax, will that then mean I have a clean slate regarding payday loans hampering any possible mortgage applications?
Sara (Debt Camel) says
sounds like it!
Georgie says
Hello, after all these years I finally have won lots of affordability complaints and I have 1 Payday loan left on my credit record (currently a few woth provident being appealed) but this one defaulted but it’s due to come off in December so it’s 5years 6months old! If I applied for a mortgage do you think they’d look at it considering it’s about to drop off? Thanks
Sara (Debt Camel) says
has it been repaid? If so, when ?
Georgie says
Hello, yes repaid 6 months later in 2017 and settler but default was Nov 2016. Your website has been amazing in clearing up all the other Payday loans so thank you!
Sara (Debt Camel) says
I think some high street lenders may consider a mortgage with that still on your credit record. Talk to a good broker!
R says
Hello,
I have a history of over three years worth of pay day loans – back in 2018 I missed payments on several whilst I was at university and was in a really bad financial situation. Most of them are all now repaid, however I do have some still open with small repayments.
I am now in the process of looking at getting a mortgage with my boyfriend. He has an incredibly high credit score, a decent salary, and a £100k deposit. How much impact do you think my low score and terrible history of payday loans will have in us getting a mortgage together? I have heard varying things and would really appreciate some advice.
Thanks,
R
Sara (Debt Camel) says
When did you last take out a payday loan? Wh6 haveyo7 already repaid the current ones?
Jane says
Hi,
Thanks for all the advice. I have a payday loan with 247moneybox showing on my Equifax credit report, which I took out in 2014 for £570. It wasn’t repaid, but was on my credit report for many years. It wasn’t on my report in January to May this year but has since re-appeared this month showing as settled (in May) and with no other info other than date opened , which was 2014 and saying it was registered with a previous address. In the meantime I’ve had a mortgage offer from Pepper Money and completion is coming up. The fact I used a payday loan in 2014 wasn’t visible when they did their credit check in April but will be now if they do a pre-completion credit check. Do you think I should be worried. ? They are an adverse credit lender, but Im really worried it will blow my mortgage offer. Appreciate any advice. Thanks
Sara (Debt Camel) says
I can’t guess how it will affect your mortgage offer.
Another person has also reported this today.
Moneybox 247 is in the late stages of administration – I doubt the administrators will listen to a complaint from you. Instead you should ask Equifax to “suppress” this loan, as it was marked as defaulted and should not now have reappeared. See https://debtcamel.co.uk/correct-credit-records-lender-administration/
Jane says
Hi,
Thanks, I have reported to CRA and emailed administrator claims email.
Strangely, the debt was never marked officially as defaulted , just as a missed payment on a monthly basis over many years. The whole 247 moneybox account then disappeared in January 2022 from my Equifax report altogether. It has reappeared with no other details other than the date the account was opened, the date the debt was satisfied which it says was May2022 and the amount, no other info is provided, such as missed payments. As such it hasn’t affected my score, but I’m worried it now looks like I have an open payday loan account from 2014 … that has recently been settled. The mortgage lenders criteria says that payday loan accounts should of been closed 1 year prior to any application … Mortgage broker has suggested to sit tight and wait to see if they notice/disregard it, but I know that they use Equifax for pre-completion checks and have real anxiety about this…
Sara (Debt Camel) says
The account should have been marked as defaulted by 247 back in 2014/15 – if it had been, it would have dropped off your account in 2020/21 and by now would be statute barred. It should come right in the end but this is rotten timing for your mortgage application.
Jim says
Hi there, I had a default with moneybox, fell off the report feb 2021, same as you, reappeared beginning of June 2022, showing as settled. I emailed the administrators saying this had been readded in error as the default was over 6 years old, they responded next day to say they’ll investigate, and today they have confirmed it was an error and have advised it will be deleted from my credit report! So yes they will remove the entry if it was over six years old.
Jane says
Hi, thanks for providing a bit of hope.
On Tuesday 247moneybox administrators have confirmed to me that they have received a message from Equifax saying that the error will be deleted and it will take a few days to reflect on my report (it doesnt say which error specifically) I’m hoping they mean the account will be removed. However at the same time the CRA have now added a notice of correction saying that I have queried/disputed info in the report, and say the error I have raised is still being investgated. This is really annoying, as this notice does nothing good for my credit report other tahn make the info look innacurate. I wondered if this also happened for you and if the 247moneybox/active securities account had now been removed from your report ?
Lenny says
I had an old 247 MoneyBox loan re-added to my report, much like yourself. I raised a dispute with Equifax. I’ve just looked at my Clearscore credit report and it says that an ‘Active Securities’ account will removed on my next report.
Not sure if they realised their mistake and removed it or if it was due to the dispute. However, as the creditor has 28 days to respond to a dispute, I suspect your dispute will be closed down soon enough.
Lenny says
I can see someone else with the same issue has said that the administrators confirmed it was a mistake and removed it. Therefore there’s a good chance they’ve just corrected all incorrect entries but haven’t actually responded to any disputes, hence them being open still.
Tom Fletch says
Hi! Really appreciate this site as always.
I won a large number of pay day loan cases with Lending Stream in 2020. We agreed to a remittance and I had presumed when they mentioned removing marks from my credit file that it would be a full removal as had been the case with just about every other lender.
However on preparing to apply for a mortgage this week I had seen they remained on my file (albeit without any negative marks). I contact Lending Stream and they mentioned they are unable to remove the loans from my file for the ‘good standing of other lenders’.
Almost all other lenders have removed the loans in full however? Is this something you would recommend I take to the Ombudsman?
Appreciate your advice!
Sara (Debt Camel) says
It’s pretty normal to only remove negative marks or where there was a very large number of loans. How many loans did you have from LS?
if the loans were all pre 2020, then you may still be OK to get a mortgage
Sarah says
Hello, I had some Payday loans successfully removed from my credit file and no longer showing however, I saw under the linked addresses section, some address linked to old accounts I had that clearly says Payday UK or something similar.
Will this impact on getting a mortgage is was logged in 2015? Thanks
Sara (Debt Camel) says
I don’t think so. If you are applying through a mortgage broker (which I always recommend) ask the broker.
Steven says
How is it you get payday loans removed from your credit file?
Sara (Debt Camel) says
Probably by winning an affordability complaint, see https://debtcamel.co.uk/payday-loan-refunds/.
For loans from lenders like Wonga and Sunny who are long gone, you may be able to get the records of the original debts “suppressed” from your credit record, see https://debtcamel.co.uk/correct-credit-records-lender-administration/.
Nat says
Good evening
I was hoping someone could help me. Me & my partner are looking at getting a mortgage together. I have 9 pay day loans on my history back in 2017. All of them are now paid and 2 of them have defaults both paid. He has a really good credit rating and mine is fair. Do you think we would be able to get a joint mortgage approved? We have had a AIP done. The house is around 275k with a 40k deposit. Any help is greatly appreciated!
Sara (Debt Camel) says
when were the defaults paid? what were the default dates?
Have you had ANY other problems on your credit record on other debts – missed payments, payment arrangements etc?
The AIP – did you go through a broker to get this?
Nat says
Default dates Jan 2018 & June 2018 last one was paid in full January this year as I set up payments.
No other problems or no late payments. My payments shows 4 years
Yes through a broker to get the AIP
Sara (Debt Camel) says
was the AIP from a high street lender? was a rate quoted?
Defaults only repaid a few months ago would be a problem even if the debt wasn’t a payday loan debt.
Nat says
No he wasn’t aware at the time.
So it’s very un likely that we wouldn’t be accepted? thank you.
Sara (Debt Camel) says
A broker can’t do their job if you don’t give them the information. I don’t think this will be easy – talk to the broker now, better that than get a rejection down the line when you have spendt money on legal fees and surveys etc
Jack says
Hi,
Hoping for some advice if possible regarding mortgage applications with payday loan history.
Me and my partner are in the process of looking for our first home. We have a joint income of around 80k per year and my partner has had no credit issues. My Checkmyfile score is 687.
I have a number of payday loans dating back to 2018/19, all of which I am in the process of having removed via irresponsible lending complaints. They were all paid on time but one is showing an arrangement to pay. I have contacted this company and they agree that this should have been removed after my irresponsible lending complaint was upheld a few year ago and TransUnion are in the process of removing this.
We will be looking to buy a property up to £210,000 with a 10% deposit.
Does it seem likely that we will be able to get a mortgage right now?
Any advice would be greatly appreciated!
Thanks in advance!
Sara (Debt Camel) says
This checkmyfile score is out of how many?
How much debt do you and your partner have, including car finance?
Jack says
Hi Sara,
Thanks for getting back to me!
The checkmyfile score is out of 1000 but is a mix of all 4 credit reference agencies. My TransUnion, equifax and Experian scores are all good individually.
The only debt we have combined is my car lease which is at around £15,000 and £280 per month.
Sara (Debt Camel) says
well that score sounds surprisingly low if the only problem on your record was an arrangement to pay that was paid off years ago.
I think you should talk to a mortgage broker after that arrangement to pay has been removed. The other payday loans are old – but still go through a mortgage broker and tell them about everything.
Jack says
I know I agree! Thanks for the advice!
Shawn says
I wouldnt worry to much mate, i think within the 12month or any missed payments then maybe, i went through a brooker and it wasnt a issue at all i had worried for about 2years for nothing, good luck
Jack says
Thanks mate, appreciate that. Glad you got yours sorted!
Michael says
Hi Sara,
I have a 118 loan that is one month from being paid off. I made a irresponsible lending complaint which was upheld and the interest was removed from this loan midway through, I have not missed a payment.
I checked my credit report this week and noticed that this loan is now showing as “Moda – short term lending” on my credit report with totally money. I’ve checked this on Check my file but it just shows as a loan. The loan was 2 years at 79% interest, I am now worried that this is showing as a payday loan when it wasn’t.
Do you know if this can be disputed? Thanks
Sara (Debt Camel) says
I suggest you look at the Statutory Credit Report from TransUnion and see what that says.
Michael says
Thanks Sara, I will do that. I’ve checked the response to my complaint and 118 said they would remove this loan from my credit report but they haven’t done so. I will chase them up about this as well.
Sara (Debt Camel) says
that is the simple thing that will solve the first problem!
Helen says
Hi Sara,
Just looking for a bit of advice. I have a property worth £600,000 which I was very lucky to get with a very large deposit from a relative and a guarantor which means Halifax only had to lend me £114 000. I wouldn’t have got it without this with my earnings alone but at the time I had a clean credit record.
I will be looking to buy a new property in the next year with my partner but I had financial issues over the last 3 years which means I have four current pay day loans with Lendable, Zopa, Cash App and 118. First three will be paid off by May 2025 and 118 will be paid off by December. No late payments.
I know that you advise people to wait two years when they have pay day Loans on their file but as I will be able to pay off my current mortgage from sale and then still have a minimum 50% deposit does this make a difference? I thought it might be the same situation as my first mortgage and they may be ok if I still have the guarantor also but just concerned about the payday loans on my file? It is also worth noting I have no record of missed payments or mortgage payments it’s just the payday loans.
Thanks
Helen
Sara (Debt Camel) says
Cash app – is that the money transfer service? or Cash asap, the payday loan broker, in which case who was your loan from?