Can I Withdraw Money From My Credit Builder Card?

A credit builder card serves as a financial tool specifically designed to help individuals establish or improve their credit history. These cards function by allowing users to make purchases, with their payment behavior reported to major credit bureaus. Consistent, on-time payments demonstrate financial responsibility, which can lead to a stronger credit score.

Cash Access with Credit Builder Cards

While credit builder cards are primarily intended for building credit through responsible spending and timely payments, many do offer the ability to access cash. This cash access typically occurs through a feature known as a “cash advance.” A cash advance involves borrowing a portion of your available credit limit directly as cash, rather than using the card for a purchase.

The mechanism for obtaining a cash advance usually involves withdrawing funds from an ATM using your card’s PIN or visiting a bank teller. The amount available for a cash advance is often a limited percentage of the overall credit limit, not the entire limit. For instance, a card with a $500 credit limit might only allow a cash advance of $50 to $100.

For secured credit builder cards, where a security deposit determines the credit limit, the cash advance comes from the available credit line and not directly from the security deposit. The security deposit acts as collateral. Therefore, taking a cash advance on a secured card does not reduce your security deposit; it uses your credit line.

Financial Implications of Cash Advances

Accessing cash through a credit builder card carries significant financial implications. Unlike regular purchases, cash advances incur immediate fees. Common cash advance fees range from 3% to 5% of the amount withdrawn, often with a minimum charge of $10. For example, withdrawing $100 could cost you $10, while a $500 advance might incur a $25 fee.

In addition to fees, cash advances usually come with a higher Annual Percentage Rate (APR) compared to the rate for standard purchases. Interest on cash advances typically begins accruing immediately from the transaction date, meaning no grace period before interest charges apply. This immediate interest accrual can quickly increase the total cost of the borrowed amount, making cash advances a very expensive way to obtain funds.

Taking a cash advance negatively affect your credit score. When you take a cash advance, it increases your outstanding balance, thereby raising your credit utilization ratio. Credit utilization, which is the amount of credit you are using compared to your total available credit, accounts for a significant portion of your credit score. A high utilization ratio, generally considered above 30%, can signal increased risk to lenders and lead to a decrease in your credit score.

The higher interest rates and fees associated with cash advances can make it more challenging to repay the borrowed amount quickly. If the balance remains high due to accumulating interest, it can prolong the period of elevated credit utilization, further impacting your credit score. Maintaining a positive payment history by making timely payments remains important, but the increased debt burden from a cash advance can make consistent, on-time payments more difficult to manage.