How does a credit score work?
Credit scores 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 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:
- Your payment history
- Your total debt
- How long you’ve been using credit (typically the age of your first credit card)
- How much credit you’ve taken out recently
- What types of credit you have
The typical credit checks
To qualify applicants for loans, some lenders will pull clients’ credit score reports, either using a hard or soft pull. This can have negative effects on the applicant’s credit. For interest accounts, most institutions don’t require a credit check but rely on Know Your Customer(KYC) checks. At ICCL, we don’t do hard or soft pulls of credit scores for loans or interest account clients. We prefer an approach that has no negative impacts on the applicant. Our process includes a Know Your Customer (KYC) and anti-money laundering (AML) check using industry-leading practices. Information gathered with this approach can include (but not limited to) collection of basic identity information, name matching against a list of known parties, and risk with regard to previous financial exchanges.
Can I use crypto to improve my credit score?
Carrying significant balances across your credit cards can drag down your credit score. ‘Credit utilization’ is dictated by those carried balances and 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.
Some ICCL clients use their loan to pay down those outstanding balances. This can go a long way towards improving your FICO and credit scores. Click here to learn more about paying down high-cost debt with ICCL.
Protecting your credit score
Along with our proven KYC/AML process, we review an applicant’s credit history and other information to assess for risk. When assessing an application, our team will review public record checks and other credit history tools. No hard or soft pulls required.
Since launching our crypto back loans at the beginning of 2018, ICCL approaches lending from a borrower’s perspective. Our products and policies are shaped by client feedback and the relationships we create with our clients. We aim to make taking out a ICCL loan as smooth as possible.
Reporting your crypto loan or interest account
When taking out a loan, the crypto will retain its value as the market moves. The only case where a crypto loan would incur a taxable event is when an automated margin trade(AMT) occurs. This means ICCL sells part of the loan collateral, bringing the LTV back to a safe level. Client’s ICCL loans are reported to governing bodies following the Uniform Commercial Code(UCC) set by each individual state. This lets the government know your crypto is held as collateral in the rare instance ICCL were to become insolvent. You can read more about how your crypto assets are stored with ICCL on our resource center.
When using the ICCL Interest Account(BIA), the crypto stored and deposited with ICCL is not subject to taxes, but any interest earned will be. If you were to earn $1,000 in interest that would be viewed as additional income and should be included in your adjusted gross income(AGI) on your tax return. You can read more about the tax implications of earning Interest in our resource center.