How Does Crypto Affect Your Credit Score?
Cryptocurrencies have been gaining a lot of traction in recent years, thanks to their ability to allow people to conduct financial transactions online without dealing with interference from financial institutions. In fact, a Statista global consumer survey reveals that these digital assets are becoming widespread all over the world—and even countries like Turkey, Brazil, and Colombia are slowly but surely adopting crypto. Plus, with fin-tech companies such as Shift providing bitcoin debit cards, a future where cryptocurrency is accessible to more people isn’t hard to imagine.
Considering cryptocurrency’s growing popularity and mainstream usage, there’s no better time than now to examine its effects on our modern-day financial transactions—particular one’s credit score. Your credit score is an important part of your financial health, and it can help you access various savings and benefits. So how exactly can cryptocurrency impact your credit score? Below, we have listed some of the reasons.
Cryptocurrency and Credit Score
Before we address how cryptocurrency affect your credit score, we first have to understand what factors affect credit score in the first place. Petal Card explains that the five most important factors that affect your credit score include payment history, credit utilization, credit history, credit account type, and credit inquiries. One thing all of these factors have in common is that your potential credit card service provider can track the information.
Simply put, cryptocurrency does not affect your credit score — at least not in its current format. Credit card service providers can’t look up the history of your transactions, so it would be near impossible for cryptocurrency to affect your credit score. One of crypto’s main draws is its anonymity, which means that none of your transactions using cryptocurrency can be traced back to you. However, with cryptocurrency rapidly evolving, there may eventually be innovations in place that could affect how our credit score systems function.
Future of Cryptocurrency and Credit
To learn how cryptocurrency technology could affect credit score systems, we also have to understand one crucial aspect of cryptocurrency: blockchain. Blockchain is what makes cryptocurrency possible, and Computer World defines it as distributed ledger technology that allows data to be stored globally across thousands of servers. This ensures secure and private transactions that are virtually impervious to fraud and external control.
But what does this mean for credit score systems?
Well, blockchain technology could redefine how credit scores are determined. Through the use of blockchain, credit scores could pivot to a reputation-based system that considers unconventional factors when determining one’s credit score. Because transactions made using blockchain technology are secure and verifiable, credit card service providers could potentially consider these as factors.
With this technology, a social and reputation-based credit score may one day be possible. This could help revitalize the credit card industry, as this new means of computing for credit scores could bring millennials back to the table. As CNBC reports, about a third of credit card applications from millennials are rejected because of their credit score, and cryptocurrency could help address this.
While cryptocurrency and credit scores have yet to intersect, the systems are ripe for innovation. And considering the rate at which technology is developing, changes may come sooner rather than later so it’s best to familiarize yourself with this type of technology now.