Will Taking a Crypto Loan Affect My Credit Score?

How does a credit score work?

Credit scores capture the likelihood that a you will repay debt. A good credit score (typically a FICO score of 700 and above) indicates that you probably make all of your monthly payments and carry a $0 balance. To qualify for the best mortgage interest rates, you want to aim at a FICO score of 740 or higher.

There are 5 factors that go into calculating your score:

  1. Your payment history
  2. Your total debt
  3. How long you’ve been using credit (typically the age of your first credit card)
  4. How much credit you’ve taken out recently
  5. What types of credit you have

The typical credit checks

To qualify applicants for loans, some lenders will pull clients’ credit score reports, either using a hard or soft pull. This can have negative effects on the applicant’s credit. For interest accounts, most institutions don’t require a credit check but rely on Know Your Customer(KYC) checks. At BlockFi, we don’t do hard or soft pulls of credit scores for loans or interest account clients. We prefer an approach that has no negative impacts on the applicant. Our process includes a Know Your Customer (KYC) and anti-money laundering (AML) check using industry-leading practices. Information gathered with this approach can include (but not limited to) collection of basic identity information, name matching against a list of known parties, and risk with regard to previous financial exchanges.

Can I use crypto to improve my credit score?

Carrying significant balances across your credit cards can drag down your credit score. ‘Credit utilization’ is dictated by those carried balances and is calculated by taking your statement balances and dividing it by your credit limits. This calculation makes up 30% of your credit score. The lower the utilization, the better. Typically utilization at around 25% of total credit card limits starts to hurt your score.

Some BlockFi clients use their loan to pay down those outstanding balances. This can go a long way towards improving your FICO and credit scores. Click here to learn more about paying down high-cost debt with BlockFi.

Protecting your credit score

Along with our proven KYC/AML process, we review an applicant’s credit history and other information to assess for risk. When assessing an application, our team will review public record checks and other credit history tools. No hard or soft pulls required.

Since launching our crypto back loans at the beginning of 2018, BlockFi approaches lending from a borrower’s perspective. Our products and policies are shaped by client feedback and the relationships we create with our clients. We aim to make taking out a BlockFi loan as smooth as possible.

Reporting your crypto loan or interest account

When taking out a loan, the crypto will retain its value as the market moves. The only case where a crypto loan would incur a taxable event is when an automated margin trade(AMT) occurs. This means BlockFi sells part of the loan collateral, bringing the LTV back to a safe level. Client’s BlockFi loans are reported to governing bodies following the Uniform Commercial Code(UCC) set by each individual state. This lets the government know your crypto is held as collateral in the rare instance BlockFi were to become insolvent. You can read more about how your crypto assets are stored with BlockFi on our resource center.

When using the BlockFi Interest Account(BIA), the crypto stored and deposited with BlockFi is not subject to taxes, but any interest earned will be. If you were to earn $1,000 in interest that would be viewed as additional income and should be included in your adjusted gross income(AGI) on your tax return. You can read more about the tax implications of earning Interest in our resource center.

If you have any questions about BlockFi or how crypto loans work, please contact us at support@blockfi.com. We love hearing from you.

The information in this article is for general purposes only and should not be interpreted to indicate a certain result will occur in your specific legal situation. The information is not legal advice and does not create an attorney-client relationship. Changes to the Internal Revenue Code may be retroactive and could significantly alter the opinions expressed herein. You should consult an attorney or accountant to discuss your specific situation.

BlockFi lets you use your Bitcoin, Ether, and Litecoin to do things like buy a home, pay down debt, or even fund your business without having to sell your crypto. Start your application now and get funded in as few as 90 minutes.

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Client Testimonials

PEOPLE ARE SAYING

As an investor with significant crypto holdings, BlockFi gave me a valuable tool to get capital, at a fair price, without liquidating my crypto holdings. Aside from offering the best price, their approach to secure storage and thoughtful loan to value ratios gave me confidence that they were the right partner to work with for my cryptocurrency needs.

ANDREW HANCOX
CEO, BLOCK8 VENTURES

As a long term crypto holder, it’s important to me to be able to leverage my existing capital without selling. Earning monthly interest all in one place has simplified how I use my cryptoassets.

ANGELA CERESNIE
CEO, CLIMB CREDIT

BlockFi makes it fun to be a hodler again.

DATOIMEE
REDDIT USER

We have felt strongly that this market needs access to debt beyond fragmented, short term margin trading options in order to reduce volatility, facilitate scale and put the financial infrastructure for this ecosystem on par with other asset classes. We're happy to have BlockFi as part of the Consensys family and see tremendous growth opportunities for their platform.

KAVITA GUPTA
MANAGING PARTNER, CONSENSYS

BlockFi was my first choice when looking to use crypto as collateral for a fiat loan. BlockFi's friendly and professional staff helped make for a very smooth process from start to finish.

STEVEN HATZAKIS
BLOCKFI CLIENT

It feels great to have my crypto be recognized as a real asset, which can used as collateral. I'm going to be able to immediately pay off a credit card I've been carrying a balance on.

CASEY R.
BLOCKFI CLIENT

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Disclaimer: Rates for BlockFi products are subject to change. Digital currency is not legal tender, is not backed by the government, and BIA accounts are riot subject to FDIC or SIPC protections. Security is our top priority. Please see our Vulnerability Disclosure Form and Bug Bounty Program.
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Disclaimer: Rates for BlockFi products are subject to change. Digital currency is not legal tender, is not backed by the government, and BIA accounts are not subject to FDIC or SIPC protections. Security is our top priority. Please see our Vulnerability Disclosure Form and Bug Bounty Program.
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