How Cash Advances Impact Your Credit Score

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Understanding Cash Advances and Their Impact on Your Credit

At O1ne Mortgage, we prioritize consumer credit and finance education. This post aims to provide an objective view to help you make the best decisions regarding cash advances and their alternatives. For any mortgage service needs, call us at 213-732-3074.

What Is a Cash Advance?

A cash advance is a feature offered by many credit cards that allows you to borrow cash. You can obtain a cash advance in person at participating financial institutions, via ATM (using a special PIN from your card issuer), or by cashing “convenience checks” provided with your card. The amount you can take as a cash advance in one day is limited by your cardholder agreement, and the total amount is typically less than the card’s total borrowing limit. Cash advances usually come with a fee, often 5% of the borrowed amount or $10, whichever is greater.

Does a Cash Advance Hurt Your Credit?

Cash advances are treated the same as regular credit card transactions on your credit reports. The balance listed on your credit report will increase by the amount of the advance, plus any fees and accumulated interest. This increase affects your credit utilization rate, which is the balance expressed as a percentage of the card’s borrowing limit. Utilization greater than about 30% can hurt your credit scores. Cash advances can affect your credit utilization more extremely than regular transactions due to higher interest rates and the lack of a grace period.

Alternatives to Cash Advances

If you need a cash loan, consider these alternatives that may be easier on your pocketbook and credit utilization:

Private Loan

Borrowing from a friend or family member can be more affordable than a cash advance. Ensure you agree on repayment terms and stick to them.

Personal Loan

An unsecured personal loan can be a good alternative, especially if you have good credit scores. These loans offer a lump-sum payment that you repay in regular monthly installments over a set period. Interest rates vary, so compare them 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 installments. You pay interest only on the outstanding balances.

Peer-to-Peer (P2P) Loan

P2P loans are issued through web-based platforms where individual investors fund the loans. These loans offer quick approval and distribution of funds. Interest rates depend on the lender’s appraisal of your ability to repay the debt.

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). These loans use your house as collateral and may offer attractive interest rates compared to cash advances. However, the application process can take several weeks, and failure to repay could mean losing your home.

The Bottom Line

A credit card cash advance can be a convenient source of money in a pinch, but it can quickly increase your balance and credit utilization, potentially hurting your credit scores. If you’re considering a cash advance or seeking alternatives, checking your credit score can give you a good idea of how lenders will view your applications. For the best rates and terms, take steps to improve your credit if necessary.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you make the best financial decisions.

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