At O1ne Mortgage, we prioritize educating our clients about financial decisions that can impact their credit and overall financial health. In this article, we will explore the concept of cash advances, their potential effects on your credit score, and some viable alternatives. If you have any mortgage service needs, feel free to call us at 213-732-3074.

What Is a Cash Advance?

A cash advance is a feature offered by many credit cards that allows you to borrow cash against your credit limit. You can obtain a cash advance through various methods, such as visiting a participating financial institution, using an ATM with a special PIN, or cashing convenience checks provided by your card issuer.

However, the amount you can borrow as a cash advance is typically limited and is usually less than your total credit limit. Additionally, cash advances come with fees, often around 5% of the borrowed amount or $10, whichever is greater.

Does a Cash Advance Hurt Your Credit?

While cash advances do not directly harm your credit score, they can increase your credit card balance quickly, which can negatively impact your credit utilization rate. Credit utilization is the ratio of your credit card balance to your credit limit, and it accounts for about 30% of your FICO® Score.

Here are some reasons why cash advances can affect your credit more severely than regular credit card transactions:

• Higher Interest Rate: Cash advances typically have higher interest rates compared to regular purchases.
• No Grace Period: Interest on cash advances starts accumulating immediately, unlike regular transactions that may have an interest-free grace period.
• Potentially Repaid Last: Payments may be applied to regular purchases before cash advances, causing interest on the cash advance to accumulate faster.

Alternatives to Cash Advances

If you need cash, consider these alternatives to avoid the high costs and potential credit impact of a cash advance:

Private Loan

Borrowing from a friend or family member can be more affordable. Ensure you agree on repayment terms and stick to them.

Personal Loan

An unsecured personal loan can be a good alternative, especially if you have good credit. These loans offer fixed interest rates and set repayment periods.

Personal Line of Credit

A personal line of credit from a bank or credit union allows you to withdraw cash up to a set limit and repay it in monthly installments.

Peer-to-Peer (P2P) Loan

P2P loans are issued through online platforms where individual investors fund small loans. These loans offer quick approval and distribution of funds.

Home Equity Loan

If you own a home, a home equity loan or line of credit (HELOC) can be a cost-effective option. However, the application process can take several weeks, and failure to repay could result in losing your home.

The Bottom Line

Cash advances can be a convenient source of funds in an emergency, but they come with high costs and can quickly increase your credit card balance. This, in turn, can negatively impact your credit utilization and credit score. Before opting for a cash advance, consider alternatives that may be more affordable and less damaging to your credit.

If you need assistance with mortgage services, O1ne Mortgage is here to help. Call us at 213-732-3074 to discuss your options and find the best solution for your financial needs.