Cashing in your IRA has no direct impact on your credit score, because IRAs are not credit accounts, so they are not factored into the credit-scoring model.
The Facts
An Individual Retirement Account (IRA) is a tax-advantaged savings account used to finance retirement. A credit score looks only at how you have managed your debts, not your savings.
Considerations
Even though cashing out your IRA has no direct effect on your credit score, the way you spend the money you take out can affect it.
Benefits
Using the money you take out of your IRA to pay down debts, get current on delinquent accounts or eliminate the need for a new loan can improve or avoid damaging your credit score.
Misconceptions
While the money in an IRA or a savings account has no impact on your credit score, lenders may consider how much money you have in reserve when you apply for a major loan.
Warning
Before cashing out your IRA, find out if there will be tax consequences. The IRS may impose a 10 percent early-withdrawal penalty if you withdraw funds before age 59 1/2.
References
- MyFICO: What's in Your Credit Report?
- MyFICO: How Your FICO Credit Score is Calculated
- MSN Money: 7 Fast Fixes for Your Credit Scores
- Equifax. "What is a Charge-Off?" Accessed Sept. 30, 2020.
- TransUnion. "Frequently Asked Credit Questions." Accessed Sept. 30, 2020.
- Experian. "Does Income Affect Credit Score?" Accessed Sept. 30, 2020.
- TransUnion. "Why Do I Have Different Credit Scores?" Accessed Sept. 30, 2020.
- Equifax. "What is the Difference Between Credit Scores From Equifax and Credit Scores From FICO?" Accessed Sept. 30, 2020.
- Fair Isaac Corporation. "How Are FICO® Scores Calculated for Married Couples?" Accessed Sept. 30, 2020.
- Experian. "Do Prepaid Cards Help Credit Scores?" Accessed Sept. 30, 2020.
- JPMorgan Chase & Co. "Do Debit Cards Build Credit?" Accessed Sept. 30, 2020.
- Experian. "Do Employers Look At Credit Reports?" Accessed Sept. 30, 2020.
- Discover. "Does Closing a Credit Card Hurt My Credit Score?" Accessed Sept. 30, 2020.
- Experian. "How Savings Can Impact Your Credit." Accessed Sept. 30, 2020.
- Fair Isaac Corporation. "How to Manage Them and What They Do to Your Credit." Accessed Sept. 30, 2020.
- Experian. "Where Can I Get a Small Loan With Bad Credit?" Accessed Sept. 30, 2020.
- TransUnion. "How Long Does It Take for a Credit Report to Update?" Accessed Sept. 30, 2020.
- Consumer Financial Protection Bureau. "How Do I Dispute an Error On My Credit Report?" Accessed Sept. 30, 2020.
- Fair Isaac Corporation. "Credit Checks: What Are Credit Inquiries and How Do They Affect Your FICO Score?" Accessed Sept. 30, 2020.
Writer Bio
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."