How Buying Cryptocurrency Can Impact Your Credit Score

While the act of buying cryptocurrency itself doesn't directly ding your credit score, the methods you use to fund your purchase certainly can. Here’s how a simple crypto transaction can ripple through your finances.

1. Funding with Credit: It often starts with how you pay. Using a credit card to buy crypto is a common route, but many issuers treat these transactions as cash advances, which come with higher fees and immediate interest accrual.
2. Rising Credit Utilization: Charging a large crypto purchase to your card increases your credit utilization ratio. A higher ratio—the amount of credit you're using versus your total limit—can lower your credit score.
3. Applying for New Credit: Some platforms offer crypto-backed loans or crypto rewards credit cards. Applying for these products typically triggers a hard inquiry on your credit report, causing a temporary dip in your score.
4. The Risk of Volatility: Cryptocurrency is notoriously volatile. If the value of your investment plummets, you are still on the hook for the original debt you used to purchase it, whether from a credit card or a loan.
5. Defaulting on Payments: Ultimately, if you're unable to repay the debt incurred from buying crypto, missed or late payments will be reported to credit bureaus. This is the most direct and damaging way it can harm your credit score.

How Much Will Buying Crypto Affect Your Credit Score?

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

• Payment Method. Using a credit card for crypto purchases can raise your credit utilization ratio, which may lower your score. Using a debit card or bank transfer avoids this potential negative impact on your credit.
• Crypto-Backed Loans. Most crypto loans are not reported to credit bureaus, so they won't help build your credit history. Defaulting on these loans can still lead to major financial losses and the liquidation of your assets.
• Credit Inquiries. Applying for a crypto credit card or certain loans may trigger a hard credit check from the platform. This inquiry can cause a small, temporary dip in your overall credit score.

How You Can Avoid Buying Crypto Affecting Your Credit Score

Use Debit Cards or Bank Transfers

The most straightforward method to safeguard your credit is to use funds you already possess. Opting for a debit card or a direct bank transfer for crypto purchases ensures the transaction doesn't involve credit, leaving your credit history and score completely unaffected by the purchase.

Pay Your Balance Immediately

If using a credit card is necessary, treat the purchase like a debit transaction. By paying off the balance immediately, you can avoid steep cash advance fees and interest. This practice also keeps your credit utilization ratio low, a crucial factor for a healthy score.

Ways to Improve Your Credit Score

Improving your credit score is entirely possible and achievable through consistent, positive financial habits. By following a few proven methods, you can see meaningful changes to your score, often within three to six months.

• Monitor your credit reports. Regularly check your reports from Experian, TransUnion, and Equifax to catch and dispute any inaccuracies that could be dragging down your score.
• Establish 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.
• Reduce your credit utilization ratio. Aim to keep your credit usage below 30% of your total available credit to show lenders you aren't over-reliant on debt.
• Become an authorized user. You can be added to the credit card of someone with a strong payment history, which can help you build credit by association.
• Diversify your credit mix. Lenders prefer to see that you can responsibly manage different types of credit, such as revolving credit (cards) and installment loans (auto, student).

The Bottom Line

Buying crypto with your own funds won't affect your credit score. However, the way you finance your purchases, such as using a credit card or loan, can have an impact.

Frequently Asked Questions

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

No, purchasing cryptocurrency with your own funds via a debit card or bank transfer does not directly impact your credit score as it is not a credit transaction.

Can taking out a crypto loan impact my credit score?

Typically, no. Most decentralized crypto loans are not reported to credit bureaus. However, some centralized crypto lending platforms may report activity, so always verify their policies first.

Will my credit score change if I use a credit card for crypto and pay it off right away?

Using a credit card can temporarily increase your credit utilization, which might briefly lower your score. Paying the balance off quickly helps minimize any negative effects.