Using your credit card for cash advance transactions can be a convenient way to access money when you need it. But it’s important to know how cash advances can impact your credit score and what sort of costs are involved with different types of cash advance transactions.
What is a cash advance?
Using your credit card to withdraw money using an ATM, EFTPOS transaction or over the counter is one type of cash advance, but there are other transactions on your credit card that are treated as a cash advance.
- Transferring funds from your credit card to your transaction account
- Using your credit card to pay for a prepaid card or gift card
- Using your credit card to buy travellers’ cheques, or for money or wire transfer, here in Australia or overseas
- Using your credit card for gambling transactions – including buying lotto tickets
Depending on the terms and conditions of your provider, you may not be able to use your credit card for one or more of these types of transactions.
Know your cash advance costs.
Most credit card providers will charge a cash advance fee for any of these transactions. This is usually a percentage amount of the transaction total.
Just like any other amount that’s added to your credit card balance, cash advances will also attract interest. But the difference is that most providers will start charging interest on cash advances straight away.
With other transactions – where you use your credit card to pay for something – you’ll usually have an interest free period, giving you time to pay off your balance before any interest is charged. This generally isn’t the case with cash advances. Some providers may also charge a different rate of interest on cash advances too. It’s important that you check the terms and conditions for your credit card account before making a cash advance transaction so you can be clear on just how much it’s going to cost.
What about your credit score?
Your credit score (or credit rating) is one of the things lenders take into account when deciding whether to agree to lend you money.
It’s a single figure based on things like how much money- you’ve borrowed or still owe and how you’ve behaved when you’ve had loan or credit card balances to pay off.
Your score can change over time depending on all sorts of changes in your borrowing and repayment history. It’s a good idea to keep an eye on your credit score because it can have a significant impact on your capacity to borrow – through a credit card, a personal loan or a mortgage for buying a home.
Cash advances aren’t recorded separately from any other type of transaction on your credit score, but if your credit balance is growing bigger over time because of cash advances or you end up falling behind on your repayments, this can have a negative impact on your credit score.
Buy now, pay later and your credit score.
Buy Now Pay Later services like Afterpay, Zip, Humm and Klarna are becoming more and more popular as an alternative to credit cards. While these services operate in a similar way – you open an account and then buy and pay off purchases in instalments – they have different terms and conditions around credit checks and reporting missed or late payments.
Some services may check your credit rating before agreeing to open an account for you. If you make late payments on your instalments, this could have an impact on your credit score.