Many people worry about their credit score when they decide to experiment with cryptocurrency. Crypto has helped many people to make lucrative investments, although it’s very important to remember that past performance is no guarantee that you will make money after purchasing it. Cryptocurrency can be very volatile, and what’s worth a lot one day can plummet in value the next. Perhaps you also have worries that investing in crypto could have a negative impact on your credit score too? If so, read on to get the information that you need so you can come to the right decision for your needs and circumstances.
What exactly is crypto?
Before we go any further, let’s take a look at what cryptocurrency actually is. Crypto is a digital currency that’s only available in a virtual form. There are many different kinds of cryptocurrency available, and two of the most famous are Bitcoin and Ethereum. It seems like new types of crypto are emerging all the time. This is why so many people invest in types of crypto that are little known and hope they become more valuable over time.
What does ‘decentralised’ mean when it comes to crypto?
The term ‘decentralised’ means the currency isn’t under the control of any person or authority. This makes it different to the cash in your bank account or the money in your pocket, which is known as fiat currency because it is issued by the government and backed by commodities like gold. Crypto is secured by blockchain technology which maintains a ledger of all transactions. These transactions are connected or chained to a huge network of computers.
Can anyone become involved in crypto?
Yes. There is nothing stopping anyone from investing in crypto, and you can get started with as little as £10. Do bear in mind that you’re very unlikely to see any big gains unless you invest a lot more than this or happen to opt for a type of crypto that goes on to rise in value massively. On the other hand, you stand to lose much less than a big investor if something does go wrong.
Crypto and your credit score
Your credit score is a number which reflects how well you manage credit. The higher your credit score is, the more likely it is that you’ll be able to borrow money when you need it. If you have a high credit score, you’re also more likely to get good interest rates when you do borrow. Some people with low credit scores can get credit, but they tend to be offered much higher interest rates. If you have a very low credit score, it can be hard to obtain any credit at all. This is why it’s so important to maintain a good credit profile so you can borrow when you really need to.
Investing in crypto won’t directly impact your credit score. Crypto isn’t regarded as credit because no borrowing is involved when you invest in crypto, unless you borrow to make your investment. When a lender runs a credit check on you, your crypto history will not show up on the report. It’s worth noting that your credit score won’t be affected whether you lose money on the crypto market or fare very well. Your crypto performance doesn’t appear on your report, just like your income, salary or overall financial worth.
Could crypto still affect my credit score?
Cryptocurrency can only affect your credit score indirectly. For instance, if you take out credit to buy credit and struggle with the repayments, you could say that crypto had indirectly reduced your score. No crypto purchases will show up on your credit report. Just think very carefully before you borrow money to buy crypto as you could end up in a very bad position if you lose the money that you have invested. You will need to make the repayments no matter how well your investments perform. It’s not a good idea to borrow to buy crypto because of how volatile and unpredictable the market is. What’s worth a lot one day can be worth much less the very next day. Your credit score could plummet if you borrow for crypto and the value of your virtual currency plummets.
What alternatives to buying crypto are available?
If you do have money to invest but don’t think crypto is right for you, there are other things you can think about investing in. Buying stock means purchasing the partial ownership of a company. The value of the stock can rise when the value of the company rises, and you may also be paid in the form of dividends. Do remember that there is no guarantee of success when you buy stocks. If a company you have bought stocks in, you could become bankrupt.
Bonds are loans you can give to the government or other organisations. It’s possible to earn interest on the money that you lend and receive the initial sum you lent when the loan comes an end. You do need to note that rates are variable and you may need to pay a penalty if you want to withdraw early. There are normally limits on how much you can invest too. If you have decided that cryptocurrency is the right investment solution for you, it’s wise to keep yourself fully up to date on the latest developments, pay close attention to expert advice and start small to get yourself familiar with how things work.
Conclusion
Investing in crypto has worked well for many investors, and you may be very tempted to get involved if you have read many success stories in the past. Just remember that you could lose everything if things go wrong. Although your crypto activity won’t directly affect your credit score, it could indirectly reduce it if you decide to borrow money to invest. Some people have found themselves unable to pay bills after borrowing to buy crypto. If you do want to purchase crypto, it’s much less risky if you use money you already have to do it.