Will paying off a payday loan have positive effect on credit report?

Yes. It will have a positive effect on your credit report since it will help to add positive payment history. Illegal payday loans are not reported on credit report. Hence, they don't help to boost your credit score as well.

But why are you planning to take out a payday loan, and that too in the present economic scenario? If you need money, take out a personal loan instead.

There are alternative options to take out a loan and boost your credit score than payday loans. However, if you're taking out a pdl to repay existing one, stop it! Opt for settlement instead to get out of the loop.

Yes, I agree with Good Nelly. If you want to improve your credit score, there are a ample ways to do it. Payday loans have incessantly high-interest rates and due to that, most of the people are bound to roll over their payday loans.
Rather, I would suggest you charge your credit cards for small amounts and pay off the outstanding balance amount in full and within time, Hopefully, it will help you to improve your credit score.