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Cash advances don't directly hurt your credit, but they can cause a credit card balance to increase even faster than it normally would, which can have negative effects on your credit. Here's what you need to know about cash advances and your credit scores.
What Is a Cash Advance?
A cash advance is an option included with many credit cards that lets you use your card to borrow cash. Cash advances may be made in person at participating financial institutions, via ATM (using a special PIN you may have to request from your card issuer) or by cashing "convenience checks" that may be provided with your card.
The amount you can take as a cash advance in one day may be limited by your cardholder agreement, as is the total amount of cash you can take in the form of advances. (This is typically less than the card's total borrowing limit.)
The amount of any cash advance is added to your credit card balance, typically along with a cash advance fee (often 5% of the borrowed amount or $10, whichever is greater).
Does a Cash Advance Hurt Your Credit?
For purposes of your credit reports and the credit scores derived from them, cash advances are treated the same as ordinary credit card transactions. If you take a cash advance, the balance listed on your credit report for the card in question will be increased by the amount of the advance (plus fee and accumulated interest, as discussed below).
Any balance increase affects a card's credit utilization rate—the balance expressed as a percentage of the card's borrowing limit. Utilization greater than about 30% can hurt your credit scores, and borrowers with exceptional FICO® Scores☉ keep their utilization rates in the single digits.
Utilization is responsible for about 30% of your FICO® Score, and cash advances can affect it more extremely than regular credit card transactions for the following reasons:
- Higher interest rate: The interest rate on cash advances is typically higher than the one charged on purchases and other normal card transactions, which can result in a higher card balance.
- No grace period: With most credit cards, regular transactions incur no interest charges if you repay them in full upon receipt of the first statement that lists them, but cash advances typically lack this interest-free grace period. Interest charges begin accumulating the day the cash advance is issued and continue to add up until the amount of the advance (plus interest) is repaid in full.
- Potentially repaid last: If you have an outstanding balance on your credit card when you take a cash advance, payments you make on the account may be applied toward regular-purchase transactions (and their lower interest charges) before they make a dent in your cash advance balance. If you can repay your balance in full, this won't make much difference, but if you only make the minimum required payment, or pay any sum less than your total regular-purchase balance, interest on the cash advance (plus the cash advance fee) can accumulate quickly, inflating your balance and your credit utilization. Your card issuer's specific policies on how it calculates and applies your minimum payments will be listed in your card's user agreement.
Alternatives to Cash Advances
If you need a cash loan, the following alternatives could be easier on your pocketbook (and your credit utilization) than a credit card cash advance:
- Private loan: Asking a friend or family member to front you the cash can be more affordable than a cash advance. If you go this route, be sure to spell out repayment arrangements and any interest charges, and stick to them.
- Personal loan: An unsecured personal loan can be a good alternative to a cash advance, especially if you have good credit scores and can qualify for a relatively low fixed interest rate. A personal loan issues you a lump-sum payment, which you must repay in regular monthly installments over a set repayment period. Repayment terms vary by loan, but typically range from two to seven years. Interest rates on personal loans range from less than 7% to more than 35% as of January 2024, and some lenders offer variable-rate personal loans. Pay close attention to the terms and compare with what you might expect to pay on a cash advance.
- Personal line of credit: A personal line of credit is a type of revolving credit account available from many banks and credit unions. It allows you to withdraw cash or write checks against a set borrowing limit and repay in monthly allotments of any amount you choose, as long as you meet a minimum payment requirement. You pay interest only on the outstanding balances. Lines of credit typically have a fixed lifespan of up to 15 years, after which they are closed, and any remaining balance must be repaid.
- Peer-to-peer (P2P) loan: This is a special type of personal loan issued through a web-based platform in which individual investors put up funds to be lent out in relatively small sums (typically no more than $5,000). These loans offer relatively quick approval and distribution of funds. P2P lenders don't always check credit scores, but they do typically require evidence of income and other assets, and the interest rates they charge will depend on their appraisal of the likelihood you'll prove unable or unwilling to repay the debt. As with conventional personal loans, the high end of the interest rate range may apply here.
- Home equity loan: If you own a home and have paid off a significant portion of your mortgage, you may qualify for a home equity loan or home equity line of credit (HELOC) that uses your house as collateral. While these loans may offer attractive interest rates when compared with cash advances, the application process can take several weeks, and failure to keep up with your repayments could mean losing your house.
The Bottom Line
A credit card cash advance can be a convenient source of money when you're in a pinch, and if you repay the borrowed sum quickly it may not cost much in terms of interest or credit utilization. But take care if your credit card has a significant balance when you seek an advance, because interest on the advance could cause your balance to increase relatively quickly. That, in turn, could elevate your credit utilization to a point where it hurts your credit scores.
If you're seeking a credit card with a cash advance option or seeking borrowing alternatives to a cash advance, checking your credit score for free from Experian can give you a good idea of how lenders will view your credit applications. To qualify for the best rates and terms, take steps to improve your credit, if necessary, before applying.