When you’re experiencing a time of financial uncertainty, looking into cash advances sometimes feels like your only option. Credit card companies will offer their customers personal loans to cover significant expenses or receive funds in an emergency.
Cash advances may seem like a feasible solution when you’re low on cash, but unless you’re aware of your credit card company’s policies and terms, it may backfire on you. The last thing you want is to be in debt because you’re paying interest on a cash advance you received.
You may be curious about how your credit score can impact your ability to get a cash advance. While your credit score may not directly be a factor, you need to understand your score’s role in your financial situation.
Cash Advances: What Are They?
Many credit card companies will allow you to take out a short-term loan when you need it, called a cash advance. You can think of it as using your credit card to pay for money instead of goods or services.
Many cash advances come with fees, and as soon as you take out cash, the interest starts to accrue over time. There’s rarely a grace period given, which means less control and flexibility when it comes to handling your finances.
Cash advances are helpful under certain circumstances, but they should not be relied upon as a primary source of income. They include limitations that may deter you from taking advantage of them. Credit card companies can cap the amount you can take in advance, which may defeat the purpose of getting one in the first place.
Your Credit Score: What Should It Be?
Believe it or not, many people are unaware of their credit score and how it affects their financial status. It’s crucial for anyone with a credit card to know their credit score, especially if they plan on making larger purchases, like buying a new car or trying to take out significant personal loans.
A credit score can fall below 580 or top 800, according to the Fair Isaac Corp. (FICO) scoring scale. Here are some examples of credit scores and how they measure up:
- 580-669: Fair
- 670-739: Good
- 740-799: Very Good
- 800+: Excellent
Your credit score is calculated using the following:
- Information from your credit report
- Your payment history
- Amount of debt you have
- Length of your credit history
Your goal is to have a high credit score, which shows lenders you are financially responsible and make your payments on time. The number of credit cards you have can also play a role in determining your credit score. A higher score indicates financial institutions can feel confident you’ll repay the amount of money you were lent.
Now, how can your credit score impact your ability to get a cash advance? Let’s explore below.
Does Your Credit Score Impact Your Ability to Get a Cash Advance?
We all know how nerve-wracking it can be to apply for a new credit card, attempt to take out a mortgage or have your credit checked under any circumstances. Many people are unaware of the implications of having a poor credit score. However, it’s essential to keep track of your financial performance.
The good news is that receiving a cash advance from your credit card company is pretty simple. Your credit score does not directly affect your ability to receive a cash advance, but there are some other factors you should consider before deciding to take money out of an ATM with your credit card.
Your Cash Advance May Be Limited
When you’re looking to get a cash advance, the main thing to remember is that your current credit score can limit how much you can receive.
If your credit limit is, say, $1,000, you may only be able to get a cash advance of $200-$300. Your credit card company has more specific information regarding your ability to utilize the cash advance feature during emergencies or if you’re in a pinch.
Your credit score plays a significant role in determining your creditworthiness. In other words, a credit card company may lower your credit line if you have trouble making payments on time or if you choose to make the minimum payment. Ultimately, a low credit score can hinder your ability to take out considerable cash advances.
Credit Card Companies Will Urge You to Take Cash Advances
Credit cards tend to force people into debt, so it’s no surprise companies will approve cash advances, regardless of your credit score. If you’re considered a risky borrower, they may charge you the highest interest rates on the money you take out.
This means you’ll be paying more than you would using alternative means of getting cash when you need it most. Any loan you take out will likely have higher interest rates because credit card companies must ensure you make those payments when they’re due.
Although a low credit score may not prevent you from taking a cash advance from your credit card company, it can still affect you in the long run. Paying it back as soon as possible lessens the impact it will have on your score.
It’s also best practice to avoid cash advances unless absolutely necessary — when you’re low on funds, the last thing you want is to face more potential debt and feel buried in interest rates and fees.
Alternatives to Cash Advances
If you’re running low on cash and looking for new opportunities to earn some money, here are some alternatives to cash advances you can benefit from. Due to their nature, they do not rely on you having a good credit score and can help you get funds when you need them.
- Get a personal loan from a bank or credit union
- Ask friends and family for money you will pay back
- Dip into savings or an emergency fund
- Sell unused products around the house online or in-person
- Claim funds left to you in a will or inheritance
These are other ways to get cash when you need it without incurring the fees associated with typical cash advances.
Credit Score and Cash Advances: The Final Verdict
While cash advances are a viable option for some people running low on money, they aren’t the best avenue to go down when managing your finances. They should be used sparingly, and you should be aware of all the terms and conditions your credit card company puts forth. This way, you know what type of payments you’ll have to make in the future and budget accordingly.
While your credit score may not directly impact your ability to receive a cash advance, you should make payments on time and avoid taking them out unless necessary. Assess the pros and cons of cash advances before making any final decisions.