When you need quick cash to sort out some urgent financial needs, cash advance always comes to your aid. This makes them one of the appealing loans in emergencies.
But wait! What are the consequences of online cash advance? Will it affect your credit score? This article helps you answer how cash advance relates to your credit report.
What Is a Cash Advance?
Cash advances fall into two categories, with the first one being featured on your credit card. You can use your credit card to withdraw money that you don’t have. The withdrawal plus interest rate and fees will be added to your credit card balance, just like any other regular purchase.
The second type is a short term loan with no credit check. They’re considered an advanced in your next paycheck. The repayment period of such a loan is two weeks. After the two weeks, you’ll need to pay the loan in a single lump sum.
How Does Cash Advance Impact Your Credit?
Online cash advance loans will not have a direct impact on your credit history. The lenders will not inform credit bureaus whenever you take some cash using your credit card account.
However, sometimes people find it hard to keep in with the monthly payments as the rates and additional fees can make the balance grow too fast. Once you experience difficulties in paying your dues, this might get to credit bureaus. You’ll slowly start seeing the advance effects of this loan go to your credit report and scores.
Will Cash Advance Loan End Up in My Credit Report?
While it may take time before the cash advance loan spill over to your credit report, sometimes this is inevitable. The loan falls under ‘no credit check loans’ because their lenders do not check your credit history. They do not report your payment to credit bureaus either.
But this only remains at that as long as you pay on time. If you don’t pay back the loan with accrued interest at the required time, the lender will have no option but to forward your details to collection agencies. Collection agencies will then report your account to credit bureaus.
When this happens, the loan will show up in your credit report. An unpaid loan will no doubt affect your credit score.
Cash Advance Loans Increase Your Credit Utilization Ratio
While cash advance may not affect your credit score directly, it can affect factors that determine your credit score. The credit utilization ratio is the total amount in your debt divided but the total credit amount.
Credit utilization is a large factor that determines your credit score. If your higher credit utilization, it will affect your credit score. Some lenders will only give you a new credit if you have a ratio of less than 30%.
High credit utilization can also show the lender that you’re not so good with money management. They can show impulsiveness or the fact that you don’t earn a lot. Lenders will consider this bad signal hence affect your ability to borrow.
Online Cash advances accrue high-interest rates and high fees. It’s important to pay as soon as possible, so the loan doesn’t increase beyond your ability.