Does a Cash Advance Affect Your Credit Rating?

Learn how cash advances can affect your credit rating and what steps you should take to ensure that it does not hurt your score.

Does a Cash Advance Affect Your Credit Rating?

When it comes to understanding how a cash advance affects your credit rating, it's important to know that a cash advance does not directly affect your credit score. Your credit history will not indicate that you borrowed one, but the balance of the cash advance will be added to your credit card debt, which can hurt your credit score if you raise your credit utilization ratio too high. Credit utilization is a score that analyzes how much of your total credit you are using. Ideally, you should keep this number below 30%.

A cash advance could easily cause its use to exceed that number and damage its credit rating. Whenever you apply for online loans, such as installment loans, and your repayment activity (including defaults) is reported to a credit bureau, your credit rating may be affected. If you start to lose payments, this can have a negative impact on your payment history, which is an important part of how your credit score is calculated. In addition to charging you a fee, either a fixed rate or a percentage of the advance, your credit company is likely to charge a higher interest rate for the advance than for the purchases.

Like payday loans, these “cash advance loans” are advertised as an “advance on the borrower's next paycheck.” Both cash advances and payday loans are ways to get a smaller amount of money for a short period of time, and both come with high rates and interest rates. Usually, these cash advances also include a commission, either a fixed rate or a percentage of the anticipated amount. To sum up, cash advances do not directly affect your credit rating but they can have an indirect effect if you are not careful. The balance of the cash advance will be added to your credit card debt which can raise your credit utilization ratio and hurt your credit score if it exceeds 30%. Additionally, if you fail to make payments on time or default on the loan, this can have a negative impact on your payment history and thus lower your credit score.

Ebony Sandoe
Ebony Sandoe

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