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Can a Cash Advance Actually Help Your Credit?

Written by
Alex Huntsberger
Alex Huntsberger is a personal finance writer who covered online lending, credit scores, and employment for OppU. His work has been cited by, Business Insider, and The Motley Fool.
Read time: 5 min
Updated on January 16, 2024
young man in white t-shirt wondering can a cash advance actually help your credit?
Cash advances show up as normal credit card purchases on your credit report.

When you’re in a financial bind and need some quick cash, resorting to a cash advance on your credit card is less than ideal, but might be worth considering. They might not come with ludicrously high interest rate and short repayment terms as compared to a payday loan, however, they’re still much costlier than just maintaining an emergency fund.

If you’re living paycheck to paycheck, it’s important to consider how a cash advance will affect your credit score. A higher score will lead to lower (i.e. better) interest rates down the line, which means an improved financial outlook overall.

How does a cash advance affect your credit score (for details on cash advances, check out What is a Cash Advance?)?

A cash advance is a loan you take out on your credit card.

When you make a purchase on your credit card, the amount you spend is added to your total balance. The same is true when you take out a cash advance, the only difference being that you receive cash instead of a purchased item. If you were to take out a $60 advance, you would receive $60 in cash and $60 would be added to your total balance.

A cash advance is convenient, but it’s much more expensive than just using your card.

There are some important differences between cash advances and regular credit card transactions. First, a cash advance usually comes with a higher interest rate than a regular credit card transaction. The difference will vary from card to card and from customer to customer, but the average credit card APR is 22.75% while the average cash advance APR is 24.70%, but can range as high as 36%.

Second, with a standard credit card transaction, there is a 30-day grace period before interest starts to accrue. However, the interest accrues on cash advance immediately. While it’s still a good idea to pay off your cash advance as soon as you can, there’s no way to avoid paying interest.

Lastly, you may be charged a fee for taking out a credit card cash advance; the average cash advance fee is approximately $10 or 5% of the advance amount, whichever is higher. That means a $500 cash advance would cost $525 right off the bat!

Does a cash advance affect your credit score?

Luckily, a cash advance won’t have a direct effect on your credit score since they aren’t recorded separately from other credit card transactions on your credit report. Cash advance would simply increase the credit card balance.

If you’re sensing a “but” coming, you are correct. While cash advances are not highlighted on your credit score, a higher credit card balance could possibly hurt your score. Your total amount owed makes up 30% of your credit score, so taking out $1,000 cash advance and adding that amount to your balance might lower your score.

Be aware that a cash advance may not impact your credit score. Taking on additional debt and paying more money towards interest just means higher balances and less room in your budget to pay them down. Theoretically, paying off a cash advance will be recorded in your payment history (which makes up 35% of your score) but it may not have a significant positive impact. Failing to pay your bill on time, however, will have an immediate negative consequence.

Some “cash advance” loans are actually payday loans in disguise.

There are several types of no credit check loans that like to call themselves “cash advance” loans, possibly to make them seem more like credit card cash advances. But don’t be misled.

While some bad credit loans, particularly installment loans, can be a useful way to cover emergency expenses, predatory no credit check loans are anything but beneficial. These loans come with much higher interest rates, significantly shorter payment terms, and they pose a greater risk to your financial future.

These loans are typically payday loans or title loans, which can carry annual interest rates of 300 to 400%. They’re meant to be paid back in a single lump sum payment, usually in a few weeks to a month after the loan was first borrowed. High rates and short terms can make these loans exceptionally hard to pay back on-time.

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