If you have checked your credit card statement recently and felt your blood pressure rising, then you are not alone.This is because there is a rising credit card debt in the United States.Reports from the Federal Reserve Bank of New York showed that it has reached over $1.13 trillion as of Q4 2024.This is a reflection of rising living costs, unexpected expenses, and sometimes, just trying to keep up appearances.

As the debts pile up, credit scores can take a hit, making it harder to secure loans, rent apartments, or even land jobs.It’s a vicious cycle.

With traditional financial systems feeling more restrictive, more people are exploring alternative strategies to boost their credit scores.One of the solutions that is making the mark is cryptocurrency.Every few weeks, there is a new cryptocurrency released and listed on the global market ready to be acquired.

Experts believe using crypto has the potential to improve credit scores.

Understanding Credit Score

The question is why credit scores are such a big deal.It is because it provides you access to financial security.It is a determinant of your ability to borrow money, secure a mortgage, rent an apartment, or even get approved for a cell phone plan.It defines the big purchases and the little conveniences in your life.

Throughout history, people have been able to make better financial decisions and improve their overall quality of life because of their credit score history.

Understanding credit scores means knowing what factors affect credit scores.The most important factor is payment history.Some find ways to pay on time, while others miss their payments but always repay before the due date.There is also credit utilization, which determines how much of the available credit is being used.

Having a longer and solid credit history is also essential as well as having a variety of credit types.All of these, if utilized properly can boost your credit score and keep you long enough in the game.However, a factor like new credit inquiries can hurt your credit score if you make too many of them.

With rising credit card debt and delinquencies increasing, many are looking for new ways to manage their finances.And that’s where crypto enters the conversation.

Crypto and Your Credit Score

There may not be a direct impact of crypto on credit score, but there sure is an indirect influence.

Crypto holdings, transactions, or trading activity are not reported to credit bureaus like Experian, Equifax, or TransUnion.So, no matter how much Bitcoin or Ethereum you own, it won’t directly improve your credit score.

However, your crypto portfolio can indirectly influence your credit score in several ways.You can use crypto to manage debt and for credit utilization.A high utilization rate can lower your score.

Some crypto holders have turned to digital assets to pay off credit card debt and reduce their utilization ratio.The best way to do that is to invest in crypto and save your profits.Then you could convert those gains into fiat currency to pay down all outstanding credit card balances.You could lower your credit utilization below 30% and boost your credit score over time.

Also, if you are purchasing your crypto using a credit card, then you may need to be careful.

Some credit card companies might treat these purchases as cash advances, which come with higher interest rates and fees.This can significantly spike up your credit utilization ratio and negatively impact your credit score.

Crypto Credit Cards

There is a growing rise of crypto credit cards.Some financial platforms have introduced crypto rewards credit cards, similar to traditional rewards cards but with crypto cashback.An example is Gemini credit cards.

These cards work like regular credit cards and responsible use can help improve your credit score.Plus, earning crypto rewards might help you build digital assets over time.

Crypto-Backed Loans

The Decentralized Finance (DeFi) nature of crypto platforms has opened up smart alternatives for borrowing and lending crypto assets.These platforms integrate traditional credit scores into their systems to assess creditworthiness.This mix of traditional financial metrics versus blockchain technology is designed to create a more inclusive ecosystem.

Instead of liquidating crypto holdings, some people take out crypto-backed loans.

These allow you to use your digital assets as collateral in exchange for a loan that is usually at lower interest rates than credit cards.

The advantage here is that there are no credit checks, the interest rates are lower, and you get to keep your crypto assets.The risk is that the market is highly volatile and there is a higher potential liquidation of assets.There is also the fact that not all lenders report to credit bureaus so loan repayments may not boost your credit score.

The global Bitcoin loan market as of 2024 was $8.58 billion.However, it is projected to increase fivefold to $45.27 by 2023.

These loans may not be the ultimate solution for building up your credit but they can certainly help to service your high-interest debts.

Practical Steps to Boost Credit Score

Crypto won’t magically boost your credit score.It might just help shape the future of credit tomorrow.Right now, it is a solution for credit improvement.

As much as crypto can provide an alternative fix, it is essential that you still boost your credit score the traditional way.Ensure all your bills are paid on time because payment history is a significant factor in credit scoring.

Aim to keep your credit card balances below 30% of your credit limit to manage your credit utilization.Avoid opening multiple accounts quickly because opening several accounts in a short period can be a red flag to lenders.Don’t forget to diversify your credit mix and check your credit reports.