As you’re likely aware, there are a lot of factors that can influence your credit score. These include your bill payment history, the amount of debt you have, the length of your credit history, the types of credit on your report, and any credit inquiries you may have. Or at least, those are the main ones! But now with cryptocurrency playing a bigger role in our day-to-day economy and investments, some are beginning to wonder if crypto, too, can have an impact.
So, can it?
First, a bit of background. If you’re wondering what are cryptocurrencies exactly, rest assured you’re not alone. Crypto may have gained significantly more influence in the world in the last few years, but to many it’s still a relatively foreign concept. The basic definition is that cryptocurrency is digital money that runs on technology. It does not exist in physical form, but is instead denoted by numbers and codes, and exchanged over “blockchains” — digital ledgers that approve and record all transactions. It is essentially an invented digital commodity, but one with very real value.
As to why cryptocurrency matters, it’s basically all in that value. Today, one bitcoin is worth over $40,000, and some growth predictions are astronomical. Furthermore, many smaller cryptocurrencies are valued by investors around the world, even if their practical use as “money” is rare. Some cryptos are believed to have significant potential for future utility; others are treated more like precious commodities. But the bottom line is that it’s no longer an unusual idea or “long shot” to invest in cryptos. Many are getting in on the game.
This leads us to the ultimate question here, which is whether or not getting in on said game can hurt your credit score. But to answer that question, we have to break it down according to different ways of getting involved with cryptocurrency:
- Investing. Investing is the most common way for people to get involved with cryptocurrency, and it does not directly affect credit scores. Of course, over-funding a crypto investment account that draws from a credit card you have can indirectly leave you in credit card debt. But this is an issue of general financial management, and is not specifically a crypto problem.
- Crypto Loans. It is not unheard of today for people to seek financial loans from crypto lenders. This is not a major credit issue, but as with any attempt at securing a loan, it does open the door to a credit inquiry. Again it’s not a problem that arises because of anything to do with cryptocurrency. But you should not expect to be immune to inquiries or the slight hits they can impose on your credit score if you’re seeking a crypto loan.
- Spending. Spending cryptocurrency by itself does not impact your credit card. It is worth noting however that new crypto rewards cards are beginning to emerge. They work differently from one example to the next, but some essentially function like crypto-linked credit cards. Spending money through these cards can affect your credit the same way any ordinary credit card usage would.
Ultimately it’s clear that cryptocurrency use does not have any unusual effect on credit scores. In fact, most crypto activity has no bearing at all on credit. However, there are some activities that affect credit scores anyway that can now be pursued through cryptocurrency.