Does withdrawing money from a credit card affect credit score?

Withdrawing Money from a Credit Card: Understanding Its Impact on Credit Score

While credit card withdrawals are not explicitly listed as a separate factor affecting credit scores, they can have an indirect impact. Understanding this impact is crucial to maintain a healthy credit profile.

Increased Credit Utilization

The primary concern associated with credit card withdrawals is increased credit utilization. Credit utilization refers to the percentage of your available credit that you are using. When you withdraw money from a credit card, you are essentially utilizing more of your available credit.

High credit utilization is generally seen as a negative factor by credit scoring models. It can indicate that you are overextending yourself financially and may have difficulty managing your debt. As a result, withdrawing large amounts of money from a credit card can lead to a decrease in your credit score.

Credit Reporting

It’s important to note that credit card withdrawals themselves are not typically reported to credit bureaus. However, the associated increased credit utilization will be reflected in your credit report. Credit bureaus will calculate your credit utilization based on the outstanding balance on the credit card, including any withdrawn amounts.

Other Considerations

Besides credit utilization, there are other factors that can influence your credit score when withdrawing money from a credit card:

• Cash advance fees: Many credit cards charge high cash advance fees, which can add to your overall debt and potentially impact your ability to pay off your balance on time.
• Interest charges: Withdrawn cash is often subject to high interest rates. If you carry a balance, the accumulated interest can further increase your debt burden.
• Negative perception: Some lenders may view frequent credit card withdrawals as a sign of financial distress, which can potentially raise red flags about your creditworthiness.

Conclusion

Withdrawing money from a credit card can have an indirect impact on your credit score by increasing your credit utilization. While it may not be a significant factor on its own, it’s crucial to be aware of the potential consequences and use credit card withdrawals judiciously. If you must withdraw cash, strive to keep your overall credit utilization low and repay the withdrawn amount promptly to minimize any negative impact on your credit score.