If you've ever wondered about the possibility of using a credit builder card at an ATM, you're not alone. Credit builder cards have gained popularity as a tool for improving credit scores and building financial stability. But can you really use them to withdraw cash from an ATM? Statistics reveal that nearly 60% of credit builder cardholders have made at least one ATM withdrawal using their cards in the past year.
In this article, we'll dive into the details to provide you with a clear and concise understanding of whether can you use a credit builder card at an ATM.
But before we get into the topic, it is recommended to first read about the 10 traps to avoid while building credit in detail by Bright Money!
Understanding Credit Builder Cards: A Quick Overview
Let's get a clear idea of a credit builder card before getting into the technicalities of utilizing one at an ATM. A secured credit card, commonly referred to as a credit builder credit card, is intended for those who are either new to using credit or who want to rehabilitate their credit. A security deposit is required for a credit builder card instead of a regular credit card, which acts as collateral and often establishes the credit limit.
Can you use credit builder at an ATM?
Yes, you can use a credit builder card at an ATM to withdraw cash, but it's important to remember that it's still a credit card and cash withdrawals typically incur high fees and interest charges. It's advisable to use it primarily for building credit and not as a primary source for cash.
The typical ATM fees and interest charges for a credit builder card can vary by the card issuer but generally include a cash advance fee, which is usually 2% to 5% of the amount withdrawn or a flat fee (e.g., $10 to $20), along with potential ATM operator fees, especially for out-of-network ATMs. Interest rates for cash advances are typically higher than for regular purchases, often around 20% to 30% or more, and interest accrues immediately with no grace period.
What are the Uses of Credit Builder Cards?
Credit builder cards are designed to help individuals establish or improve their credit history. These cards come with specific features and usage guidelines:
- Secured Cards: Credit builder cards are often secured, meaning you need to provide a security deposit as collateral. This deposit determines your credit limit
- Regular Payments: To build credit, it's crucial to make timely and consistent payments. Pay your credit builder card bill in full and on time each month to show responsible credit behavior
- Low Credit Risk: These cards are typically easier to qualify for, making them suitable for those with no credit history or a low credit score
- Credit Reporting: Credit builder cards report your payment history to the major credit bureaus. Positive payment history can help boost your credit score over time
- No Rewards or Perks: Credit builder cards often lack rewards or perks that come with traditional credit cards. Their primary purpose is to establish or rebuild credit
- Usage Limitations: Keep your credit utilization low by using only a small portion of your available credit. A utilization rate below 30% is advisable
- Regular Monitoring: Regularly check your credit reports to ensure that your credit builder card activity is reported accurately. Dispute any errors promptly
- Graduation: Some credit builder cards may offer a pathway to upgrade to a traditional unsecured credit card once you've demonstrated responsible credit use
- Patience and Discipline: Building credit takes time. Be patient, and avoid overspending or missing payments. Consistency is key
How to Use a Credit Builder Card at an ATM?
Statistics indicate that younger individuals between the ages of 25 and 35 constitute the majority of credit builder cardholders who frequently use ATMs. Follow these simple steps if you’re looking to use your credit builder card at an ATM:
Step 1: Ensure Sufficient Available Credit
Before you make your way to the nearest ATM, take a moment to review your credit builder card's available credit. Available credit refers to the amount of funds you can still access without exceeding your credit limit. This is a crucial step as using an ATM to withdraw cash will temporarily reduce your available credit until the transaction is paid off.
Your credit limit is the maximum amount of money you can borrow from your credit builder credit card, while your outstanding balance is the sum of money you owe to the credit card company based on your previous transactions. The available credit, then, is the difference between your credit limit and your outstanding balance. Make sure that you have enough available credit to cover the cash withdrawal you plan to make.
Step 2: Locate a Compatible ATM
Not all ATMs are created equal, especially when it comes to credit builder credit cards. To ensure a smooth transaction, seek out ATMs that bear the logos of major card networks like Visa or Mastercard. These familiar logos indicate that the ATM is more likely to accept credit builder cards for cash withdrawals.
Finding a compatible ATM is particularly important as using an incompatible ATM can result in transaction failures or additional fees. Some ATMs may not support credit card transactions at all, so it's advisable to look for those widely accepted symbols before proceeding.
Step 3: Insert Your Card and Follow Instructions
Once you've identified a compatible ATM, it's time to initiate the transaction. Insert your credit builder card into the ATM's card slot. The screen will be asking you to follow a series of instructions to complete the transaction. These instructions often involve choosing the type of transaction you wish to make, such as a withdrawal or balance inquiry.
As an added layer of security, you'll need to enter your Personal Identification Number (PIN) to authorize the transaction. Your PIN serves as a unique code that verifies your identity and makes sure that only you are able to access your funds through the ATM. Keep in mind that some ATMs might charge an additional fee specifically for credit card cash advances, so be aware of any associated costs.
Step 4: Choose the Cash Withdrawal Option
With your card inserted and your PIN entered, you'll typically be presented with a menu of transaction options on the ATM screen. Choose the "Cash Withdrawal" option to proceed with accessing funds. Depending on the ATM's user interface, you might also be prompted to specify the account type from which you'd like to withdraw funds. Common account types include "Checking" and "Savings."
It's essential to note that the amount you can withdraw is subject to both your available credit and the ATM's withdrawal limits. ATM withdrawal limits vary and are usually set by the bank that operates the machine. Your credit card's available credit will also play a role in finding out the maximum amount you can withdraw.
Step 5: Collect Your Cash and Receipt
Once you've completed the steps outlined by the ATM's prompts and selected your desired withdrawal amount, the machine will process your request. In a matter of moments, the ATM will dispense the requested cash amount. Be sure to collect both the cash and any receipts the ATM provides.
Receipts can serve as valuable documentation of the transaction, showing the date, time, location, and amount of your withdrawal. It's a good practice to keep these receipts until you've reconciled your transactions with your credit card statement.
What are the benefits of Using a Credit Builder Card at an ATM?
Using a credit builder card at an ATM offers several benefits, including:
1. Building Credit History
The good effect it may have on your credit history is one of the main benefits of using a credit builder card at an ATM. Your credit builder card reports every purchase you make, including ATM cash withdrawals, to the three main credit bureaus. This implies that over time, making timely and conscientious purchases can help you establish a strong credit history.
Your total creditworthiness greatly depends on your credit history. Lenders look at your credit history to determine how well you handle credit. Using your credit builder card consistently and paying off any money withdrawn on time demonstrates your dependability as a borrower, which can raise your credit score and lead to future prospects for higher credit.
2. Access to Emergency Funds
Life is full of unexpected events, and having access to emergency funds can provide you with peace of mind during challenging times. Using your credit builder card at an ATM allows you to quickly access cash when you need it most. Whether you encounter a sudden medical expense, a car repair, or any other unforeseen financial obligation, your credit builder card can serve as a safety net.
Unlike other sources of credit, such as personal loans or lines of credit, a credit builder card doesn't require prior application or approval for cash withdrawals. This means that you can tap into your available credit immediately, offering a valuable lifeline in times of urgency.
3. Convenience and Flexibility
ATMs are ubiquitous and offer a high level of convenience and accessibility. Whether you're in your hometown or traveling to a different city, finding an ATM is rarely a challenge. This widespread availability ensures that you have access to cash whenever you need it, without the need to carry large sums of money.
Additionally, using a credit builder card at an ATM provides you with flexibility in your spending. You can use the withdrawn cash for a variety of purposes, such as making purchases from businesses that only accept cash, covering small expenses, or splitting bills with friends. This flexibility adds a layer of convenience to your financial transactions.
4. Establishing Responsible Financial Habits
Using a credit builder card at an ATM encourages the development of responsible financial habits. As you manage your credit builder card account, you'll become more attuned to tracking your spending, monitoring your available credit, and ensuring that you can cover your withdrawals without straining your finances.
These habits are transferable to other aspects of your financial life, including managing credit cards, loans, and other financial obligations. The skills you acquire through using a credit builder card can contribute to long-term financial success and stability.
5. Demonstrating Creditworthiness to Lenders
Consistent and responsible use of your credit builder card can improve your overall credit profile and demonstrate your creditworthiness to potential lenders. As your credit history develops, lenders will observe your ability to manage credit and make timely payments. This positive behavior can position you as a reliable borrower when you seek larger credit options, such as auto loans or mortgages.
A strong credit history increases your chances of being approved for loans at favorable interest rates and terms, saving you money over the life of the loan. Additionally, a higher credit score can also lead to lower insurance premiums and better rental opportunities, as landlords often consider credit history when evaluating applicants.
What are the limitations to keep in mind?
Reports reveal that nearly 40% of credit builder cardholders surveyed expressed a desire for more transparent information regarding these fees and their implications. While using a credit builder card at an ATM can be beneficial, it's essential to be aware of the limitations:
1. Cash Advance Fees
One of the primary limitations of using a credit builder card at an ATM is the presence of cash advance fees. When you withdraw cash from your credit builder card, you might incur additional charges, which include both cash advance fees imposed by your credit card issuer and potential ATM operator surcharges.
Cash advance fees are typically stated as a percentage of the amount withdrawn or as a flat fee, whichever is higher. These fees can add up pretty fast, especially if you frequently use your credit builder card for cash withdrawals. To mitigate the impact of cash advance fees, it's advisable to withdraw larger amounts of cash less frequently rather than making several smaller withdrawals.
2. Impact on Credit Utilization
The effect on your credit usage ratio of using a credit builder card at an ATM is another crucial factor to take into account. The percentage of your credit card balances to your credit limits is referred to as your credit usage ratio. This ratio is important in establishing your creditworthiness and is taken into account when calculating your credit score.
When you withdraw cash from your credit builder card, your outstanding balance increases. If the withdrawn amount is substantial, it can elevate your credit card balances, leading to a higher credit utilization ratio. High utilization ratios are generally perceived negatively by credit scoring models and can potentially lower your credit score.
To maintain a healthy credit utilization ratio, it's recommended to keep your credit card balances well below your credit limits. If you do use your credit builder card for ATM withdrawals, consider paying off the balance as quickly as possible to minimize the impact on your credit utilization.
3. Potential Interest Rates
Using your credit builder card for cash advances can also expose you to potential interest rates that are often higher than those for regular purchases. Unlike regular purchases, which might come with a grace period during which no interest is charged if the balance is paid in full by the due date, cash advances typically start accruing interest immediately from the moment of withdrawal.
These higher interest rates can lead to significant interest charges if you don't repay the cash advance balance promptly. Over time, these charges can offset the benefits gained from using your credit builder card for cash withdrawals. To mitigate interest charges, aim to repay the cash advance balance as soon as possible, ideally within the same billing cycle.
4. Credit Score Impact
While responsible use of a credit builder card can help you build a positive credit history, mismanaging the card can have adverse effects on your credit score. If you consistently rely on ATM withdrawals from your credit builder card and struggle to repay the balances, your credit score may suffer.
Late payments, defaults, or accumulating high balances on your credit builder card can lead to a lower credit score and also make it more challenging to qualify for favorable lending terms in the future. It's crucial to use your credit builder card prudently and prioritize timely repayments to safeguard your credit score.
5. Limited Availability of ATMs
Although ATMs are widespread, there might be instances where you're unable to find a compatible ATM promptly. Depending on your location or circumstances, you might need to travel a certain distance to locate an ATM that accepts your credit builder card for withdrawals. This limitation could potentially inconvenience you, especially during emergencies.
To mitigate this limitation, it's advisable to identify nearby ATMs that accept your credit builder card beforehand. This way, you'll have a plan in place for accessing cash when needed, reducing the chances of being caught off guard by limited ATM availability.
Conclusion
Thus, using a credit builder card at an ATM can be a useful financial tool for building credit and accessing cash in emergencies. However, it's essential to understand the mechanics, benefits, limitations, and best practices associated with this approach. By making informed decisions and managing your credit responsibly, you can leverage a credit builder card to improve your financial standing over time.
Recommended Reads:
Should I pay my credit card bill as soon as I get it?
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FAQS
1. Can I Use My Credit Builder Card at an ATM?
Yes, you can definitely use your credit builder card at an ATM to withdraw cash, just like a regular debit or credit card. However, there are some important factors to consider, such as fees, credit utilization, and potential interest rates.
2. What Is a Credit Builder Card?
A secured credit card, commonly referred to as a credit builder card, is intended to assist people establish or repair their credit history. The security deposit it needs serves as collateral and frequently establishes the card's credit limit. Your credit score can rise over time if you use it sensibly.
3. How Does Using a Credit Builder Card at an ATM Impact My Credit?
Your credit may be impacted in several ways if you use a credit builder card at an ATM. Positively, prudent use can aid in establishing a solid credit history. However, making lots of ATM withdrawals will raise your credit usage rate and perhaps result in interest charges, which might lower your credit score.
4. Are There Fees for Using My Credit Builder Card at an ATM?
It's true that using your credit cards card at an ATM is frequently subject to fees. These costs may include ATM surcharges and cash advance fees levied by the company that issued your credit card. To comprehend the charge schedule, it is important to read the terms and conditions of your credit card.
5. How Does Credit Utilization Affect My Credit Score?
Credit utilization is actually the ratio of your credit card balances to your credit limits, plays a very crucial role in determining your credit score. Higher utilization ratios can negatively impact your score. Withdrawing cash from your credit builder card can increase your outstanding balance, potentially raising your utilization ratio.
6. Can I Use My Credit Builder Card for Purchases as Well?
Yes, you may make purchases and ATM withdrawals using your credit builder card. It works in a manner similar to a standard credit card, giving you the freedom to make purchases at shops and withdraw money from ATMs.
7. What Are the Benefits of Using a Credit Builder Card at an ATM?
Using a credit builder card at an ATM offers benefits such as building credit history, accessing emergency funds, and convenience. Each transaction is reported to credit bureaus, contributing to your credit history.
8. How Can I Minimize the Impact of Cash Advance Fees?
To minimize the impact of cash advance fees, consider withdrawing larger amounts of cash less frequently. This reduces the number of transactions subject to fees. Additionally, pay off the cash advance balance promptly to avoid accruing unnecessary interest charges.
9. Are All ATMs Compatible with Credit Builder Cards?
Not all ATMs are compatible with credit builder cards. Look for ATMs that display logos of major card networks like Visa or Mastercard. These are more likely to accept credit builder cards for cash withdrawals.
10. Should I Always Use My Credit Builder Card at ATMs?
Using your credit builder card at ATMs can be useful for specific situations, such as emergencies or when you need quick access to cash. However, it's essential to balance ATM withdrawals with responsible credit management to ensure you're not negatively impacting your credit score.
References:
https://www2.deloitte.com/xe/en/insights/industry/financial-services/consumer-payment-survey.html
https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-card-market-report_2021.pdf
