Does a cash advance affect my credit score?
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UPDATED: Nov 6, 2012
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Cash advances can potentially affect a borrower’s credit score. This is true despite the fact that lenders do not check credit histories or require high credit scores from applicants. While applying for a cash advance doesn’t result in an immediate change to a credit score, if a borrower defaults on their payments it can result in damage.
In the event of a default, a cash advance lender may notify credit agencies about the borrower’s failure to repay their debt. As a result a borrower’s credit score may go down. A lowered credit score can cause a number of problems for a borrower.
Credit scores shed light on whether a person is financially trustworthy or not. Naturally, lenders will be hesitant to give money to a borrower that has proven to be prone to defaulting. As a result, people who default often may have difficulty obtaining approval for financing in the future. This can be especially problematic for consumers looking to borrow money towards the purchase of a home or vehicle.
Cash advances carry very high interest rates which can sometimes be in excess of 100 percent annually. This is because lenders do not conduct credit checks before lending money to a borrower. In fact, some lenders just require that a borrower have a checking account. Cash advances can prove difficult to repay due to these high interest rates. This can lead to borrowers defaulting on their payments, which is one reason that lenders protect themselves with high interest rates. On top of that, many lenders charge fees for failing to pay on time or for wanting to rollover the balance.
In order to avoid credit problems, borrowers should be cautious about how much of a cash advance they request. Borrowers should evaluate their income levels to make sure they can afford to repay any debt they incur. Understanding personal finances allows borrowers to avoid worrying about their credit scores.