Does taking cash out of a credit card hurt your credit?

Cash Advances: Impact on Credit Score

Using a credit card for cash withdrawals, known as cash advances, can have a detrimental effect on your credit score. Despite not being shown as distinct accounts, cash advances can contribute to a decrease in your creditworthiness.

Understanding Credit Utilization

Credit utilization refers to the amount of your total available credit limit that you are currently using. When you make a cash advance, the withdrawn amount is added to your outstanding balance, increasing your credit utilization ratio.

High Credit Utilization: A Negative Indicator

Credit scoring models consider high credit utilization as a sign of financial strain. It indicates that you are using a significant portion of your available credit, which can raise concerns about your ability to repay your debts.

Cash Advances and Increased Credit Utilization

Cash advances directly increase your credit utilization ratio. For example, if you have a credit limit of $10,000 and an outstanding balance of $5,000, your credit utilization is 50%. If you make a cash advance of $500, your credit utilization jumps to 55%, making your credit profile appear riskier.

Impact on Credit Score

Increased credit utilization can negatively impact your credit score. Lenders view it as a warning sign that you may have difficulty managing your debt, leading to missed payments or defaults. As a result, your credit score may decrease, affecting your eligibility for future loans or credit products.

Other Considerations

In addition to the impact on credit utilization, cash advances typically come with higher interest rates and fees compared to regular credit card purchases. This can further increase your financial burden and potentially damage your credit score if you fail to pay off the advances on time.

Alternative Options

If you need cash but want to avoid the negative impact on your credit, consider alternative options such as:

• Personal loan
• Payday loan (use with caution due to high interest rates)
• Transferring funds from a savings account

Conclusion

While cash advances may provide temporary access to cash, they can have a negative impact on your credit score by increasing your credit utilization ratio. Before making a cash advance, carefully consider the financial implications and seek alternative options if possible. By managing your credit responsibly, you can maintain a good credit score and improve your financial well-being in the long run.