Some people fear that taking a credit card cash advance is similar to taking out a loan and that it will negatively affect their credit score. This is not the case in fact; these cash advances may help your credit score. When you apply for a cash advance through your credit card company, credit-reporting agencies don’t even know because these advances are not reported. There are certain circumstances in which a cash advance may hurt your credit score but if done correctly they will have little to no effect.
Paying It Off
Depending on how long you take to repay the cash advance will determine how it will affect your credit score. If you make your payments on time and pay off the full balance in the specified time period it will reflect positively on your credit score. If you miss payments or fail to repay the advanced amount, the credit card company will report this negatively to the reporting agency. Taking the advance is not reported but the payment history is so be careful to make all payments on time and pay the full balance owed.
Borrowing Large Amounts
Although taking the cash advance from your credit card will not affect your credit score there are situations where it may affect it. If you frequently take large sums in cash advances, you may find it difficult to repay the balance in the time allowed. Missing payments or defaulting on the balance entirely can negatively impact your credit score. Borrowing large amounts will decrease the available credit on the card, which can reflect negatively on your credit score.
Higher Interest Rate
Cash advance transactions have a much higher interest rate than purchase transactions. This can make it more difficult to pay off this balance, which can in turn affect your credit score. If you get behind in your payments due to the higher interest rate the credit card company will then begin reporting the late payments to the credit reporting agencies. Once the late payments have been reported your credit score will begin to drop.
Many people don’t realize that in addition to the higher interest rate many credit card companies will also charge a onetime fee per cash advance transaction. This fee is usually 3% or $10.00. Those who see this fee stated in the fine print may not realize that you will pay whichever is greater of the two choices at the time you make the cash advance withdrawal. Repaying the amount taken out may become more difficult once you add in the fee to the total.
Many people apply for a credit card as a way to open a revolving line of credit in order to build up their credit score. This is a great idea as long as you intend on fully paying off the balance each month. If you take out a cash advance, you should be sure that you would be able to follow the same rule of paying off the balance each month. If you are unsure how long it will take you to pay off the full balance, it is best to avoid a cash advance as it can negatively affect the credit you are attempting to build.
For the most part as long as you pay the balance off in the specified amount of time and don’t frequently borrow money from your credit card, your credit card should not be negatively affected. The problem is many people find themselves taking out more cash advances to cover the expenses of the previous advance. This can cause your score to drop once reported depending on your debt to income ratio.