How Buying Cryptocurrency Can Impact Your Credit Score

Buying cryptocurrency itself doesn't directly affect your credit score, as these transactions aren't reported to credit bureaus. However, the methods used to fund your purchases can have a significant impact.

1. The process begins with how you fund the purchase. Using a credit card or taking out a personal loan to buy crypto links the transaction to your credit history.

2. Charging crypto to a credit card increases your credit utilization ratio—the percentage of your available credit you're using. A higher ratio can negatively impact your score.

3. Many credit card issuers treat cryptocurrency purchases as cash advances. These typically come with higher fees and start accruing interest immediately, increasing your debt burden.

4. If you take out a personal loan, the lender will perform a hard inquiry on your credit, which can temporarily lower your score. The new loan also increases your total debt.

5. Should the value of your crypto assets fall, making it difficult to repay the borrowed funds, any late or missed payments will be reported, causing direct and significant damage to your credit score.

How Much Will Buying Crypto Affect Your Credit Score?

While buying cryptocurrency itself doesn't directly impact your credit score, the methods you use to purchase it can. Here are a few key factors to consider.

• Direct Purchases: Buying crypto with your own funds, like from a bank account, doesn't involve credit and won't appear on your report. This means there is no direct impact on your score from the purchase itself.
• Credit Card Use: Using a credit card for crypto purchases increases your credit utilization ratio. A high ratio can lower your credit score, signaling potential risk to lenders and affecting your financial standing.
• Crypto-Backed Loans: Most crypto-backed loans are not reported to the major credit bureaus. Therefore, these loans typically won't affect your credit score unless the lender specifically reports your payment activity.

How You Can Avoid Buying Crypto Affecting Your Credit Score

Use Debit Cards or Bank Transfers

The simplest way to keep crypto buys off your credit report is to use your own money. Opting for a debit card or a direct bank transfer means you aren't borrowing funds, so there's no debt to report to credit bureaus.

Pay Your Balance Immediately

If you must use a credit card, treat it like a debit transaction. Pay off the purchase amount immediately to avoid high cash advance interest and to keep your credit utilization ratio low, minimizing any potential negative impact on your score.

Consider a Crypto-Friendly Card

Some credit cards are designed for crypto enthusiasts. These may treat digital asset purchases as regular transactions rather than cash advances, helping you avoid extra fees and high APRs. Researching these options can be a strategic move for active traders.

Choose the Right Card to Buying Crypto

No matter your current standing, it's always possible to take steps toward a better financial future. Through consistent, positive habits, improving your credit score is an achievable goal that can unlock better loan terms and financial opportunities.

• Monitor Your Credit Reports. Regularly obtain your free reports from all three major bureaus—Experian, TransUnion, and Equifax—to check for inaccuracies or signs of identity theft.
• Set Up Automatic Bill Payments. Since payment history is the most significant factor in your score, setting up automatic payments ensures you never miss a due date.
• Lower Your Credit Utilization. Aim to use less than 30% of your available credit by paying down balances or requesting a credit limit increase on existing accounts.
• Become an Authorized User. Being added to a credit card account with a long history of on-time payments and low utilization can give your own score a boost.
• Diversify Your Credit Mix. Lenders like to see that you can responsibly manage different types of credit, such as a mix of revolving credit and installment loans.
• Limit Hard Inquiries. When shopping for new credit, use prequalification tools whenever possible and try to group applications within a short time frame to minimize the impact on your score.

The Bottom Line

Buying cryptocurrency with a debit card or bank transfer won't impact your credit score. However, using a credit card for crypto purchases could indirectly affect it through higher credit utilization.

Frequently Asked Questions

Does buying crypto with a credit card affect my credit score?

Yes, it can. Using a credit card increases your credit utilization ratio, which can lower your score. Many issuers also treat these purchases as cash advances.

Do crypto loans appear on my credit report?

Typically, no. Most crypto-backed loans are not reported to the three major credit bureaus, so they won't directly impact your traditional credit score for now.

Can my crypto holdings improve my creditworthiness?

Not directly. Traditional lenders do not currently consider crypto assets when evaluating your credit score, though this could change as regulations and practices evolve over time.