Does withdrawing cash from a credit card affect credit score?

Does Cash Advance Affect Credit Score?

Withdrawing cash from a credit card, known as a cash advance, can have a negative impact on your credit score. While cash advances themselves are not directly listed on your credit report, they can indirectly affect your score in several ways.

Increased Credit Utilization

Cash advances increase your outstanding credit balance and, thus, your credit utilization ratio. Credit utilization is the percentage of your available credit that you’ve used. High credit utilization can make you seem like a risky borrower to lenders, potentially lowering your credit score.

Negative Impact on Payment History

Cash advances typically have higher interest rates than regular credit card purchases. If you struggle to pay off your cash advance balance quickly, you may fall behind on your payments. Late or missed payments have a severe negative impact on your credit score.

Lower Available Credit

When you take out a cash advance, the amount is deducted from your available credit limit. This reduces the amount of credit you have available for purchases, potentially increasing your credit utilization ratio further.

Additional Fees and Interest Charges

Cash advances often come with additional fees and high interest rates. These charges can add to your overall debt load and make it more difficult to manage your finances, which can also affect your credit score.

Avoid Cash Advances if Possible

Due to their negative impact on your credit score, it’s best to avoid cash advances whenever possible. If you need cash, consider using a debit card, taking out a personal loan, or using a credit card with a 0% introductory APR on balance transfers.

Conclusion

While cash advances can be a convenient way to access cash, they can come with significant drawbacks. By understanding the potential impact on your credit score, you can make informed decisions about whether or not to withdraw cash from your credit card. If you do need to use a cash advance, aim to pay off the balance as quickly as possible to minimize any negative effects on your creditworthiness.