Does a Cash Advance Hurt Your Credit?
If you’re in a bind and need cash quickly, you might turn to a cash advance, which is a short-term personal loan against your credit card balance. Because it’s so convenient, it comes with higher interest rates and other fees.
Cash advances can impact credit scores like any other loan. While they don’t inherently hurt your credit score, they can lead to future credit issues. For example, using too much of your available credit or paying your cash advance back late can ding your credit score.
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What is a cash advance?
A cash advance is a short-term loan that allows you to borrow cash using an existing credit line, often a credit card. Credit card companies typically charge cash advance fees, and you may have to pay higher interest rates on the amount (relative to purchases on the credit card). Cash advances also start accruing interest immediately, unlike regular credit card purchases, which have a grace period.
There are a few different ways to get a cash advance. You can use certain ATMs, you could go to your bank or credit union, or you might be able to use convenience checks, which your card issuer may provide.
Does a cash advance hurt your credit?
A cash advance shouldn’t affect your credit score as long as you make timely repayments and keep an appropriate credit utilization ratio (the percentage of your available credit you use to borrow money). In fact, if you make debt payments on time, your credit score might even improve — lenders like to see a strong track record of timely payments.
That said, there are reasons why it could hurt your credit:
Higher interest rates on repayment
Your monthly credit card bill will be higher if you take out a cash advance. If you can’t pay that bill on time, your debt will grow and put you at risk of missing future payments, which can drop your credit score by as much as 180 points.
Impacts credit utilization ratio
Lenders like to see you use under 30% of your available credit each month, and your credit score may fall if your credit utilization rises above that threshold. Depending on the size of your cash advance, it could significantly affect your credit utilization ratio.
As long as you’re able to pay off the cash advance, taking a small one out to cover a one-time emergency or simply if you need cash on hand could be a good option. But if you’re taking out cash advances to cover normal expenses and struggling to repay previous ones, you could get trapped in a cycle of debt, which would hurt your credit score.
Alternatives to a cash advance
You may find a better option than a cash advance if you want some cold hard cash in your wallet.
Checking or savings account withdrawal
If you have enough funds available in a checking or savings account, you can take out money from your bank or an ATM. You don’t have to pay fees or interest on those withdrawals because it’s your money. Getting cash with a debit card (as long as you’re not overdrawing your account) is better than getting cash with your credit card.
Credit card purchases
Depending on why you need money, it could be better to pay for an expense with your credit card than to take out a cash advance with the card. Maybe this isn’t an option for you — if you need cash and can’t pay with a card, it wouldn’t be — but the interest rate on credit card purchases is lower than the rate on cash advances, and interest doesn’t accrue right away.
Debt consolidation loan
If you’re taking out a cash advance to pay off existing debt, you’ll likely find more favorable terms and lower rates with a debt consolidation loan. Lenders offer these loans to refinance existing debt, which may include credit card debt. Debt consolidation loans tend to have lower interest rates.
Payday loans
Much like a cash advance, payday loans have unfavorable terms for borrowers. Generally, you’ll have to pay these loans back quickly (often with your next paycheck), and lenders charge high interest rates. Since their terms can be even worse than cash advances, payday loans should only be considered as a last resort to cover emergency expenses.
Ask for help from family or friends
Depending on your social network, you may be able to find financial assistance through family or friends. You won’t have to work with a bank or lender, but be careful to pay back your debts as agreed — you can harm those relationships if you don’t.
Frequently asked questions
If you already have a credit card, you can get a cash advance by using that card at an ATM or your bank to withdraw money. Sometimes lenders brand payday loans and other products as cash advances as well. Typically they have high interest rates and short repayment terms.
A merchant cash advance is different from a cash advance. Companies use them to cover short-term cash flow problems by promising to pay back a percentage of their future sales, often at high interest rates. Merchant cash advances are offered by business lenders, not credit card issuers.
A payday loan is like a cash advance without a credit card. With a payday loan, you’re borrowing cash for a short-term loan with high interest rates — but instead of using your existing line of credit through a card issuer, you’re taking out a loan on its own.
Standard techniques for improving your credit score include building a strong record of on-time payments, using some of your credit each month (but not too much) and taking out different kinds of loans. Your credit score could also rise over time as past marks on your credit report expire, though that can take several years. Disputing incorrect information on your credit report could help as well.