Will a Cash Advance Hurt My Credit Score?

When you’re under financial pressure and you need access to money fast, a cash advance is one option that you might consider. But taking out a cash advance on your credit card may come with negative consequences—including a potential negative impact to your credit score.

A credit card cash advance won’t cause direct credit score damage. But there are ways this type of transaction could harm your credit score in the long run. Below are some of the most important details you should understand about cash advances and your credit scores along with other details to consider before you use this type of financing.

What is a cash advance?

A cash advance is a type of transaction that allows you to withdraw cash from your credit card account. Rather than using your credit card to make a purchase, a cash advance is a different way of borrowing money from your credit card’s line of credit.^[1]

Although you may be able to use your credit card for a cash advance, before you move forward you should understand that cash advances differ from traditional credit card purchases in several ways.

• Limits: Your credit card issuer may not allow you to access your full credit line where cash advances are concerned. For example, you might have a $5,000 credit limit on your account but your cash advance limit could be less.
• Cash advance fee: When you use a credit card for a cash advance, most card issuers will charge you a cash advance fee for the transaction. This cost is often around 5% of the amount you withdraw or $10—whichever is greater. Some card issuers, however, may charge higher or lower fees.^[2]
• Cash advance APR: You’ll typically pay your credit card company a higher interest rate on cash advances compared to what you pay for regular credit card purchases. Plus, cash advance interest begins to accrue as soon as you withdraw funds from your account. With regular purchases, credit card companies offer a grace period and you can avoid credit card interest charges altogether if you pay off your statement balance by the due date each month.^[3]
• Repayment order: If you owe an outstanding balance on your credit card when you take a cash advance, your credit card issuer may apply the payments you make on your account toward your regular purchase transactions (with a lower APR) first. After you pay off that balance, only then may your card issuer apply the payments you make toward your cash advance balance.^[4]

There are several ways to request a cash advance if you decide you want to access cash from your credit card account in this manner. Depending on the terms of your credit card agreement you may be able to access cash from your credit card via an ATM or in person at your bank or credit union. Your credit card company might also provide you with convenience checks you can cash or deposit in your checking account.

Still, it’s wise to count the cost of these types of transactions before you proceed—including the potential impact to your credit score.

Can a cash advance hurt your credit score?

A credit card cash advance won’t have a direct negative impact on your credit score. Yet there are indirect ways that a cash advance could harm your credit score in the future.

Below are a few potential risks.

• Credit utilization ratio: When you take out a cash advance it could increase your credit utilization ratio. Credit utilization describes the relationship between your credit card limit and your credit card balance. If you owe a $2,500 balance on a credit card with a $5,000 limit, your credit utilization ratio is 50%.

Credit utilization is a major factor that influences your credit score. Any time your credit utilization ratio increases, there’s a chance your credit score will decline.

Because cash advances feature higher interest rates, higher fees, and you potentially pay these balances off last, these transactions run the risk of increasing your credit utilization ratio faster than regular purchases. If you can’t afford to pay off a cash advance immediately, not only could this financing choice be an expensive way to borrow money but it could also lower your credit score until you can afford to pay off your credit card debt.

• Late payment risk: When you take out a cash advance, it will increase your monthly credit card payment if you can’t afford to pay off the money you borrow right away. A higher monthly payment could increase your risk of late payments, especially if you overextend yourself financially.

If you do fall behind on a credit card payment (by 30 days or more), you’ll typically end up with a late payment on your credit report. Late payments can remain on your credit report for up to seven years and could cause credit score damage.^[5]

What is a cash advance app?

In recent years, a newer form of financing called cash advance apps have gained popularity. Also known as early payday apps, these small dollar loans may appeal to consumers that need fast access to cash to bridge the gap between paychecks.

Cash advance apps typically don’t require a credit check. So, they may work well for some consumers with bad credit as well as people who need to establish credit for the first time.

When you use a cash advance app, you can typically only borrow small amounts (e.g., $25 to $750). Larger loan amounts may become available, however, if you’re a repeat customer and prove that you repay the money you borrow as promised.^[6]

To use a cash advance app, you may need to connect your bank account and upload information about your income and employment. If you’re eligible, you may be able to transfer a portion of your upcoming paycheck to your bank account or onto a designated debit card.^[7]

The cost to use cash advance apps can vary depending on the lender or service provider. Some cash advance apps advertise no interest but make money in other ways such as monthly service fees, fees for expedited delivery, etc. As a result, it’s important to crunch the numbers before you borrow because the cost for using these services could add up over time.

The differences between a cash advance and a payday loan

Cash advances and payday loans are fast financing solutions that may appeal to consumers who need to access cash in a hurry. At the same time, they can also be risky and expensive ways to borrow money—especially payday loans which are predatory and you should typically avoid.

Payday lenders typically charge a percentage or flat fee for every $100 you borrow. The fee often ranges between $10 to $30 per $100 borrowed. According to the Consumer Financial Protection Bureau, a fee of $15 per $100 is common—equivalent to a hefty APR of around 400% for a two-week payday loan. You could also incur rollover penalties if you decide to extend your payday loan, late fees, and other potential charges, making payday loan debt often difficult to manage.^[8]

Although there are some similarities between cash advances and payday loans, it’s important to understand the differences between these potentially high-cost financing options. In general, it’s also best to avoid borrowing money using these methods and to consider alternative solutions.

Here’s a look at some of the key differences between cash advances, cash advance apps, and payday loans.

• Credit check: A payday loan doesn’t require a credit check and neither does a cash advance app in most cases. As a result, these borrowing options may be attractive to consumers with bad credit who feel they have limited financing solutions. Credit card cash advances, on the other hand, are only available to consumers who can qualify for a credit card account that offers this type of transaction. Almost every credit card issuer will require you to submit to a credit check when you apply for a new account. You may need at least a good credit score to qualify for many credit card offers. Yet there are some credit cards that are available to help people establish or rebuild credit, such as secured credit cards. But not all credit cards offer cash advances.
• Cost: In general, payday loans are more expensive than cash advance apps or credit card cash advances. But both types of cash advances still have the potential to be high-cost ways to borrow money.
• Funding speed: You may be able to walk out of a payday loan store the same day with cash if the lender approves your application. And credit card cash advances may offer same-day access to cash as well. But with cash advance apps, it might take a few days before you receive the funds you apply to borrow.^[6]
• Borrowing limit: With payday loans and cash advance apps, you might only be able to borrow a few hundred dollars or less. Depending on the situation, this low availability of credit might not be enough to meet your needs. But if you have a credit card with a larger credit limit and sufficient available credit, a credit card cash advance could give you the ability to borrow more money in a financial crunch.

What to do instead of a cash advance

There are many downsides to using a cash advance, including the high cost and potential for indirect credit score damage. So before you choose this method of financing, it’s wise to consider different ways to borrow money.

Below are several cash advance alternatives that could be safer and more affordable.

• Personal loan: If your credit score is in decent shape, you might be eligible for a personal loan. This type of financing can give you access to a lump sum of cash which you’ll typically repay to your lender at a fixed interest rate and a fixed monthly payment. Interest rates on personal loans vary based on your credit score and other factors, but they’re often much more affordable than cash advances and payday loans. According to the Federal Reserve, the average interest rate on a 24-month personal loan at commercial banks was 11.92% as of May 2024.^[9]
• Credit card purchase: Another potential way to borrow money is to use your credit card for purchases rather than taking out a cash advance on your account. If you don’t specifically need access to cash, this option could be a somewhat more affordable financing solution. But keep in mind that it’s still best to pay off your full credit card bill each month if possible. Revolving an outstanding credit card balance of any kind (regular balance or cash advance balance) can still be expensive and may still hurt your credit score.
• Private loan: Getting a loan from a friend or family member is another borrowing option that could be more affordable than a cash advance. But there’s a risk with this type of financing that’s important to consider—the risk of relationship damage. Make sure you have a clear repayment plan upfront if you borrow money from loved ones and try your best to avoid late payments so you don’t damage any important relationships in your life.
• Home equity financing: If you own a house and have decent credit, you could consider borrowing against the equity in your home. Home equity loans and home equity lines of credit (HELOCs) are two financing options that let you use your home equity as collateral to borrow money with typically more attractive terms than you might be able to secure otherwise. On the downside, these financing options—also called second mortgages—come with risks. Namely, if you fail to repay the money you borrow the lender could foreclose on your home in an effort to recuperate its losses.
• Payday Alternative Loan (PAL): Some federal credit unions offer small-dollar payday alternative loans or PALs. These loans typically range from $200 to $1,000. As a borrower, you must repay the loan within one to six months. Federal credit unions can charge application fees up to $20 for the loans and interest rates up to 28%—a far more affordable option compared to payday loans and some cash advances (depending on how you manage repayment of the money you borrow).^[10]

Bottom line

A cash advance could provide you with fast access to cash when you’re in a bind. But the cost of this convenience could be high—both from a financial perspective and possibly where your credit score is concerned too (albeit in an indirect way).

Before you move forward with a cash advance, it’s important to understand the impact it could have on your budget and your credit score. You should also look into other financing options to see if another alternative might work for you.

If you decide to use a credit card cash advance anyway, take time to understand the fees and interest associated with this type of transaction and be sure you can afford the cost. You should also create a plan to pay off your debt as soon as possible to try to minimize potential costs and protect your credit as much as possible.

Sources

1. Bettermoneyhabits.BankofAmerica.com. “What is a credit card cash advance?” https://bettermoneyhabits.bankofamerica.com/en/credit/what-is-a-credit-card-cash-advance
2. Experian.com. “What Is a Credit Card Cash Advance Fee?” https://www.experian.com/blogs/ask-experian/what-is-credit-card-cash-advance-fee/
3. Chase.com. “What is a cash advance on a credit card & how does it work?” https://www.chase.com/personal/credit-cards/education/basics/how-do-credit-card-cash-advances-work
4. Experian.com. “Does a Cash Advance Hurt Your Credit?” https://www.experian.com/blogs/ask-experian/does-cash-advance-hurt-credit/
5. Equifax.com. “Can You Remove Late Payments from Your Credit Reports?” https://www.equifax.com/personal/education/credit/report/articles/-/learn/remove-late-payments-credit-report/#:~:text=A%20late%20payment%20will%20be,credit%20reports%20after%20seven%20years
6. Experian.com. “Payday Loan vs. Cash Advance App: What’s the Difference?” https://www.experian.com/blogs/ask-experian/payday-loan-vs-cash-advance-app/
7. Fortune.com/Recommends. “10 cash advance apps that can help when you need money fast.” https://fortune.com/recommends/banking/cash-advance-apps/
8. Consumerfinance.gov. “What are the costs and fees for a payday loan?” https://www.consumerfinance.gov/ask-cfpb/what-are-the-costs-and-fees-for-a-payday-loan-en-1589/
9. Fred.stlouisfed.org. “Finance Rate on Personal Loans at Commercial Banks, 24 Month Loan.” https://fred.stlouisfed.org/series/TERMCBPER24NS
10. MyCreditUnion.gov. “Payday Loan Alternatives.” https://mycreditunion.gov/life-events/consumer-loans/payday-loan-alternatives

About the author

Michelle Lambright Black is a nationally recognized credit expert with two decades of experience. She is the founder of CreditWriter.com, an online credit education resource and community that helps busy moms learn how to build good credit and a strong financial plan that they can leverage to their advantage. Michelle's work has been published thousands of times by FICO, Experian, Forbes, Bankrate, MarketWatch, Parents, U.S. News & World Report, and many other outlets. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).

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