Do Digital Currencies Impact Credit Scores?

John Ulzheimer

John Ulzheimer | Blog

Nov 06, 2014 | Updated Apr 27, 2016

Digital currencies such as Bitcoin and Litecoin have been gaining popularity and attracting their fair share of media attention. Depending on whom you ask, Bitcoin is either a smart investment or an unstable gamble. As with any subject in the financial arena, consumers may wonder what kind of impact Bitcoin or other digital currencies could have upon their credit reports and scores, if any.

What Is Bitcoin?

In 2009, Bitcoin was created by someone using the alias Satoshi Nakamoto, and has now become the most popular type of digital currency currently available. Bitcoin and other digital currencies are electronically stored and can be used in online transactions where accepted.

For many, one of the most appealing draws of digital currency is the fact that it is not centrally regulated by any government or bank. Therefore, individuals are free to transact with one another and even anonymously if they wish to do so. Transactions can also be more affordable since there is no middle man involved.

Too Good To Be True?

While the idea that digital currencies like Bitcoin are not centrally regulated can be appealing to some people, an unregulated market also comes with a significant amount of risk to the consumer. First of all, Bitcoin wallets (the digital storage place for a consumer’s Bitcoins) are not insured by the FDIC. If you invest in Bitcoins and your virtual wallet is hacked, then you could lose your funds with no recourse to recover them. If Bitcoin fails in the future then the consumer will simply lose his investment.

The Consumer Financial Protection Bureau (CFPB) has even issued an advisory warning regarding Bitcoin and other digital currencies. In the advisory the CFPB refers to Bitcoin as the “Wild West” and encourages consumers to exercise extreme caution when investing their money into any digital currency market. The CFPB is accepting complaints from consumers who have experienced trouble with a digital currency product or service; however, if the company providing the product and services falls outside of the CFPB’s jurisdiction then there is very little that can be done on the consumer’s behalf.

Check out our Definitive Guide To Building Credit to learn about the factors that do influence your score »

Why Bitcoin Does Not Impact Credit Scores

Bitcoin and other digital currencies are a very risky endeavor, but thankfully they do not have the ability to harm a consumer’s credit reports or scores. Credit reports do not have information regarding a consumer’s wealth metrics. This means your income, the balance in your bank account, the value of your investment holdings, or the balance in your digital wallet.

Credit scores are calculated based only on the information found on a consumer’s credit reports. If information is absent from a consumer’s credit reports then it would be impossible for said information to influence credit scores. This is by design, as credit scores are calculated to predict the likelihood that you’ll pay back your credit obligations, not whether or not you can afford to pay them back. Having a high income or a lot of funds in your digital wallet might make it easier to pay your bills, but just because you have a high income or large balance in your digital wallet does not mean that your credit scores will be good, bad or average.

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