Whether you were an early adopter or a recent buyer, if you have more than $10,000 worth of cryptocurrencies, you can do more with your investments than just hodling. And here’s the key - you don’t have to sell. Instead of letting your holdings sit untouched while you wait for the price of BTC or ETH to appreciate, you could be accessing incremental liquidity and improving your credit score. Here’s how.
A collateralized loan allows you to post your BTC or ETH as collateral. What this means is you can you use your significant crypto investments to prove that you are a good borrower, instead of a credit score. In exchange you can get 35% of your holdings in cash in the form of a loan from BlockFi. On your end, once a month, you’ll be responsible for paying 1% of that cash back in interest.
Here’s what that looks like:
So how does a BlockFi loan help your credit score?
BlockFi is the only company providing financial services to blockchain investors that has partnered with TransUnion. We were able to do that because we built our platform with a keen focus on compliance and regulations. Each BlockFi loan is reported to TransUnion, and each payment you make goes towards improving your payment history, and in turn, improving your credit score.
So how does your credit score work?
Credit scores are trying to 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 credit card 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:
BlockFi’s loans help #1 and #5.
Every time you make your monthly loan payment, it will serve to improve your credit score. Payment history makes up 35% of your credit score, so paying back your BlockFi loan can have a significant impact on your overall score.
The 5th factor looks at credit mix, or the different types of credit you have available. This makes up 10% of your credit score. If you don’t already have an installment loan on your credit report, adding a BlockFi loan could help indicate to other lenders that you are able to pay back different types of debt.
Lastly, if you happen to be carrying significant balances across your credit cards, this is dragging down your score. Credit utilization 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. Using a BlockFi loan to pay down those outstanding balances can go a long way towards improving your FICO score.
There are many other use cases for a BlockFi loan. If you’re interested in learning more about how the process works, check out our other article.
If you’d like to go ahead and apply to see what size loan you could get, our application takes about two minutes and unlike traditional lenders, we don’t pull your credit score. All you need to apply is your crypto holdings!
As always, feel free to reach out to us if you have any questions.
--The BlockFi Team