May 1, 2026
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You borrowed, you repaid on time and you keep hoping that this paycheque will stretch just a little bit further and help you avoid using that payday loan. But it doesn't, and the cycle repeats — in part because the loan you're using will never help your credit score.
Almost two years ago, Equifax Canada said it would begin to explore whether payday loan repayment data could be incorporated into credit score calculations. This one change could help establish or strengthen scores for roughly five million Canadians (1) — people who struggle with budgetary constraints and can't get access to more cost-effective credit.
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Unfortunately, the initiative remains in the research phase. To help, here is what Canadians need to know about payday loans and how they actually affect credit — plus, four strategies that genuinely help to build your credit score.
Why payday loans don't build your credit
There is no law in Canada — federal or provincial — requiring payday lenders to report borrowing and repayment data to Equifax Canada or TransUnion Canada. Reporting is entirely voluntary, and the vast majority of payday lenders opt out. That means months of on-time payments build zero credit history.
What's worse is that failing to repay a payday loan can result in serious consequences. The Financial Consumer Agency of Canada (FCAC), the federal consumer watchdog, confirms that failing to repay may result in collection agency involvement, which may then appear on a credit report (2) — further eroding your credit score.
That's because when this type of loan is unpaid, the lender sells the debt to a collection agency; the collector then reports it to the credit bureaus. That generates an R9 rating — the worst designation on Canada's credit scale and the equivalent of a bankruptcy — which stays on your credit file for up to six years.
FCAC data shows 44.8% of payday loan users reported a credit score decrease, compared with 23.9% of non-users (3). Meanwhile, 15.1% of payday loan users had filed a consumer proposal or bankruptcy, versus 1.7% of non-users.
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4 better ways to build credit in Canada
If the goal is a stronger credit score, then skip the payday lender and use any or all of the following four options.
1. Get a secured credit card
A secured card works like a regular credit card, but you deposit cash as collateral — typically between $50 to $500 — which becomes your credit limit. Because issuers report to both credit bureaus monthly, every on-time payment builds a positive payment history, which is the single largest factor in your credit score.
Options include the Neo Secured Mastercard (minimum $50 deposit, no credit check) and the Home Trust Secured Visa (minimum $500, no annual fee option). Treat the card like a debit card — spend only what you can repay in full. Or check out our guide on the top secured credit cards in Canada to find the right one for you to build or repair credit.
2. Try a credit builder loan
Credit builder loans are designed specifically to establish a payment record. You make fixed monthly payments — often $10 to $100 — and the funds accumulate in a savings account you access at the end.
According to Borrowell, the average credit score increased by 41 points in five months among users who started with a credit score below 600 (4). Spring Financial's Foundation program accepts applicants with no credit history and reports to both bureaus.
3. Report your rent payments
For the 48% of payday loan users who are renters (5), turning monthly rent into a credit-building tool is one of the most practical options available.
Equifax Canada now accepts rent payment tradelines through services like Borrowell Rent Advantage ($10/month, no landlord sign-off required) and FrontLobby. (You can check out other rental programs here, just be sure it fits your budget and will actually help you.)
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TransUnion Canada has not yet integrated rental data, so results currently appear only on your Equifax report.
4. Become an authorized user on someone's credit card
If a family member has a credit card in good standing with TD or RBC, ask to be added as an authorized user.
Unlike in the U.S., where almost every bank reports authorized users, Canadian banks are inconsistent about reporting the transactions from authorized cardholders. The good news is that some issuers, such as TD and RBC, will report to the bureaus, as will certain Amex cards (you just need to ask to be sure). Keep in mind, the primary cardholder's habits will directly affect your score, so choose someone whose payments are consistently on-time and carries low balances.
Need cash fast? Credit unions offer a better deal
If you need emergency funds — not just credit building — credit unions are a genuine alternative to payday lenders. Vancity Credit Union's Fair & Fast Loan (6) provides $100 to $2,500 at a 19% annual percentage rate (APR).
For example, a $500 two-week Fair & Fast Loan would cost you $2.20 in interest versus the $70 fee from a payday lender.
DUCA Impact Lab's Escalator Loan, which is expanding nationally, approves borrowers based on cash flow rather than credit score and charges prime plus 8%, with a 2% rebate for on-time payments.
If you'd rather shop online, first, check out a loan consolidator like Loans Canada. Consolidators help you compare and find the best rates, and you only need to fill out one application.
Free help is also available. Credit Canada provides national credit counselling at no charge (1-800-267-2272), and non-profit organizations such as Momentum in Calgary offer microloans up to $1,500 at 12% interest for borrowers who may not qualify elsewhere.
Payday loan FAQ
As of January 1, 2025, the federal government harmonized the maximum cost of borrowing nationally, meaning payday lenders can only charge a maximum of $14 per $100 borrowed. Plus, dishonoured payment fees are capped at $20 (7). So, if you borrowed $300 through a two-week loan, it would now cost a maximum of $42 in fees — still roughly seven to nine times more expensive than a line of credit or credit card cash advance for the same amount and period, according to the FCAC.
Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.
Equifax Canada (1); Government of Canada (2),(3),(5); Borrowell (4); Victoria Times Colonist (6); Canada Gazette (7)
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Romana King, Senior Editor at Money.ca, also writes for various North American publications and the RKHomeowner blog. Her book, House Poor No More, is an Amazon bestseller and five-time award winner, including the 2022 New York CPA Society's Excellence in Financial Journalism (EFJ) Book Award.
