In recent years, cryptocurrencies have taken the center stage. Indeed, various cryptocurrencies, from the ever-popular Bitcoin to Cardano’s own ADA, have become a hot topic for blockchain enthusiasts. Aside from using it to pay for their day-to-day transactions, many people have also capitalized on these cryptocurrencies by trading them on online platforms. Indeed, The Paypers highlights how more and more people are using cryptocurrencies every day, with more than 47 million active blockchain wallets all over the globe. For this reason, asking “Can cryptocurrency affect my credit score?” is a perfectly valid question.
In this post, we’ll take a quick look at cryptocurrency transactions and figure out the relationship between cryptocurrency and credit scores.
A Primer on Cryptocurrency Transactions
In-person transactions that don’t use cash are always tied to an extension of credit. Indeed, even paying using financial services such as PayPal or Venmo involves credit. This is because with these transactions, credit is extended until the transaction is cleared by the system. Instant clearing is not possible through these digital payment services as there still are a lot of limitations when it comes to international money. In this regard, transactions made with services such as PayPal or Venmo are almost the same as paying through credit cards.
On the other hand, cryptocurrency payments are comparable to cash transactions and wire transfers. Payments are made through two parties without passing through a middle man. Using blockchain technology that is spread out through a private network of computers, transacting with cryptocurrency is a smoother and more secure experience. Every transaction is encrypted on the blockchain and is not facilitated by a financial institution.
How Exactly Can Cryptocurrency Transactions Affect My Credit Score?
Since cryptocurrency transactions are akin to cash transactions, they don’t have a direct effect on your credit score. Cryptocurrency that’s used for trading, saving, and investment purposes will not impact your credit history and score. However, there are certain situations that are combine cryptocurrency with your credit score.
For one, using credit cards to buy cryptocurrency has an impact on your credit score. If you use your credit card to buy huge amounts of a certain cryptocurrency in the hopes of making a profit, you run the risk of losing your investment if the price drops. Not being able to pay your credit card balance and missing other payments can drive down your credit score, as pointed out by Petal Card. Unfortunately this might make it harder to raise your score once it's lowered because of this reason. In addition, using crypto debit cards that are partnered with credit institutions such as Visa or Mastercard also does not have a profound effect on your credit score. Despite having access to a credit institution’s network, crypto debit cards cannot affect your debit score. However, these cards do offer a ton of rewards that will entice crypto enthusiasts and encourage more people to use crypto technology.
All in all, you shouldn’t worry about your credit score when transacting with cryptocurrency. However, this might soon change as more and more people adopt crypto technology and look for financial solutions that involve cryptocurrencies.