Do Credit Card Cash Advances Affect Credit Score?

A credit card cash advance can affect your credit score, often negatively. Understanding the implications of these transactions is important for financial health. While they may seem like a quick solution for immediate cash needs, their characteristics can lead to higher costs and potential damage to your credit profile.

Characteristics of Cash Advances

A credit card cash advance is a way to borrow cash against your credit limit, differing significantly from standard credit card purchases. These advances typically incur interest immediately, unlike purchases that often have a grace period before interest begins to accrue. The Annual Percentage Rate (APR) for cash advances is also frequently higher than the APR applied to regular purchases, making them a more expensive form of borrowing.

In addition to higher interest, cash advances come with associated fees. Credit card companies commonly charge a cash advance fee, which is often a percentage of the amount withdrawn, typically ranging from 3% to 5% or a flat fee of $10, whichever is greater. If accessed via an ATM, additional ATM operator fees might apply. The amount of cash you can withdraw is usually subject to a specific cash advance limit, which is often lower than your total credit limit for purchases. Accessing these funds can be done through an ATM using your card and PIN, at a bank teller, or sometimes via convenience checks provided by your card issuer.

How Cash Advances Impact Credit Score Factors

Cash advances can influence your credit score primarily through their effect on credit utilization. When you take a cash advance, the amount is added to your credit card balance, immediately increasing your outstanding debt. This increase directly impacts your credit utilization ratio, which is the percentage of your available credit that you are currently using. A high credit utilization ratio, generally considered to be above 30%, can negatively affect your credit score, as it signals a higher risk to lenders. Even if the cash advance is paid off quickly, the brief period of high utilization might still be captured and reported to credit bureaus, potentially causing a temporary dip in your score.

The high cost of cash advances, including immediate interest and fees, can lead to issues with payment history. These added expenses make it challenging to repay the balance, increasing the likelihood of missed or late payments. Payment history is a significant factor in credit scoring models, and even a single missed payment can severely damage your credit score. The financial strain created by a cash advance can make it harder to manage your overall credit obligations, potentially leading to adverse reporting.

The increased balance from a cash advance can reduce your available credit, making it harder to qualify for new credit if you apply while the balance is high. Cash advances are considered revolving credit, similar to regular credit card purchases. The primary impact stems from the increased balance and the strain on repayment capacity.

Credit Report Reporting of Cash Advances

The amount of a cash advance, along with any fees and accrued interest, is incorporated into the overall outstanding balance of your credit card account. When credit bureaus receive information from your credit card issuer, the cash advance contributes to the total debt reported for that specific credit card.

The main way a cash advance is reflected on a credit report is through the reported balance and the “high balance” mark for the account. If a cash advance significantly increases your credit card balance, this higher balance will be reported to the credit bureaus. Even if you pay down the balance quickly after taking the advance, the reported high balance from that billing cycle could still appear on your credit report, influencing your credit utilization ratio for that period.

Any late payments that occur as a direct result of struggling to repay the cash advance debt will be reported as late payments on your credit report. These reported late payments can have a negative impact on your payment history, which is a significant component of your credit score.