People are increasingly requesting loans. This trend is mainly due to the growth in the segment of unsecured loans issued at the expense of borrowers with a low credit rating. At the dawn of retail lending, almost everyone could get a loan. Since then, the banking sector has faced several crises, due to which it suffered losses. In such a way, it has managed to accumulate credit history data, which allowed it to identify bona fide and unscrupulous borrowers.
Today, credit history (credit score) is the most important factor in deciding whether to approve or refuse a loan application. Poor scoring will hardly bring you a “yes” from a lending organization. And we doubt that you are ready to deal with the risk. In this review, we will focus on crypto lending and answer whether crypto loans are going to affect your credit score.
What Is a Credit Score?
Your Personal Credit Rating (PCR) - or financial health score - is generated from all of your credit history records. In other words, it demonstrates the applicant's chances of obtaining a loan or mortgage from a bank. It is used by financial institutions to judge the good faith of the borrower.
Today, a standardized system for assessing the "credit quality" of borrowers has been developed. A credit rating is a self-assessment tool for obtaining credit products. With the help of this information, people not only immediately understand how "high-quality" their credit history is but also what specific conditions for bank loans they can count on.
The credit rating is based on a couple of parameters, namely:
- The good faith of the fulfillment of obligations to creditors - that is, the timely repayment of previous loans;
- Diversification of loans - The use of different types of loans, even multiple loans, has a positive effect on the rating, while an excessive number of loans of the same type negatively impacts the credit rating of a user;
- Length of credit history - This indicator reflects the borrower's experience in lending. It is the time interval since the credit history was updated - the latest records have a stronger effect on the PCR than the old ones.
The main advantage of crypto loans is that customers do not depend on banks that can refuse loans to that segment of the population that has a low scoring rating or no rating at all. These are people who have never taken out a loan. That is why it has become easier for youngsters aged 20-22 to get a loan. If earlier the optimal age for opening a credit history was about 28-30 years, now it has decreased significantly. In addition, clients who use cryptocurrency are already considered to be clients with a good rating.
Today, a crypto loan not only increases the chances of getting money on more favorable terms but also makes this procedure easier and faster. Taking into account the development and transformation of traditional financial products, this indicator has every chance of becoming more significant in the next two to three years. So, let’s check what’s going to happen.