Factors Affecting Credit Scores: Determining the Scope of Crypto-based Credit Assessment
Numerous details and credit-habits go into the making of credit scores, which are also the factors responsible for helping the lender determine creditworthiness. In other words, these factors are essentially markers of the risk of default associated with user accounts. For borrowers therefore, it becomes crucial that they are aware of these factors and their effect on credit reports in order to reduce financial vulnerability.
In this regard, Hybrid Bank’s DeFi-based credit reports are the first-of-its-kind. Motivated by the lack of a viable FinTech alternative, Hybrid Bank is leveraging blockchain technology to develop a unique credit reporting system. Effectively, the scope of this novel solution spans across the blockchain-cryptocurrency community — covering individuals, exchanges, and mining companies and bringing them under the ambit of decentralised credit reporting.
In the process of considering factors that affect credit score, it’s imperative to bear in mind the nature of businesses within the community. Against this backdrop, let us discuss two major aspects of credit reporting that enable you to generate optimal value from your credit scores.
Credit Utilization
A portion of your credit score is measured by the balance between the total amount of debt on an account and the credit limit. Credit limit, in traditional finance, is the maximum amount of credit financial institutions lend to a credit card holder. In blockchain-based credit reports, credit utilization reflects a user’s credit usage, or, the history of loans a user has taken against the balance available in their account.
This can be a little tricky to grasp at first, but lending platforms like Hybrid Bank make it easier for both individual users and companies. It is important to remember that while it’s better to have a lesser amount of residual crypto-loans in your account, it’s not advisable to have zero balance. For lenders, a strong history of loans and loan repayment on borrowers’ profiles acts as a proof of good financial habits and stability. With lesser available balance on an account and yet having a good loan-history is proof of confidence for lenders. It also affects credit score positively.
As a lending platform, Hybrid Bank allows easy maintenance of lower balances by allowing the option of lending to users. Hybrid Bank’s policies further ensure competitive interest rates on loaned amounts.
Credit Inquiries
In traditional credit, because credit information is not freely available, the number of applications an individual makes that requires a credit check, affects the credit score negatively. In addition, a certain amount of money is also charged as fees for each inquiry.
On the contrary, a crypto-based credit history assessment platform is expected to allow borrowers and lenders to have free and open access to their credit information. That too, without such access affecting their credit scores. Among other factors, such transparency is pivotal to the optimised matching of lenders and borrowers based on their conditions and demands.
Hybrid Bank’s blockchain-based credit reports take it further by rethinking traditional systems in favour of allowing control and autonomy to the individual user. The platform’s users can freely track their credit score in real-time and share them with others, as and when necessary, solely upon their own discretion. Lastly, by restoring the ownership of credit information with the user, Hybrid Bank is ensuring a breakthrough in the credit assessment sector, effectively empowering users to make well-informed decisions.
We are looking to partner with projects who are involved in Crypto Credit Cards and if you are one of them, feel free to email us at partners@hybridbank.io
