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Crypto Card: How it Works and Does it Impact Your Credit Score?

Crypto Card
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Crypto is no longer confined to the internet as you can now make purchases using your cryptocurrencies via a regular credit or debit card and earn rewards in crypto for your purchases. 

There’s increasing evidence of crypto adoption, beginning with the new crypto startups that continue emerging or the growing list of businesses adopting crypto appearing. Moreover, some traditional financial industry players are embracing cryptocurrencies, something the traditional crypto community never imagined could happen.

The result is emerging new products and services customized explicitly for cryptocurrency users. Crypto cards are among the latest developments creating a convenient way for people to spend their crypto.   

If you’re used to cash back, miles or points, you could have heard about a new breed of cards offering crypto rewards on your purchases. Crypto cards are now a buzzword, enabling consumers’ access to their crypto holdings.

These easy-to-get cards could appeal to crypto-curious investors looking to dip their toes into the crypto space and existing crypto enthusiasts experienced in using digital assets.  

Even as these cards become commonplace, they indicate how far cryptocurrencies have come since the launch of Bitcoin (BTC). While it’s an open secret that they haven’t yet reached universal adoption, we can affirm that cryptocurrencies continue their grand march as they encroach onto our everyday lives.

Before you decide whether a crypto card is good for you, this article will explain what crypto cards are, how they work and how they impact your credit score. 

Cryptocurrencies Are Coming of Age 

From their inception over a decade ago, concerns were raised around issues like lack of regulation, criminality, and the impact cryptocurrencies would have on environmental sustainability and established currency markets.

Over time, developments showed crypto was metamorphosing from its initial existential stage to the current institutional phase.   

cryptocurrencies

From the U.S.A’s recent executive order to “ensure responsible development of digital assets” to the U.K.’s plans to regulate some cryptocurrencies or Dubai’s promise to grant virtual asset licenses, countries and governments are all jostling to welcome crypto assets.

Leading institutions and investment banks are also embracing these new financial tools to broaden their services and attract emerging clients who believe in cryptocurrencies.   

As uncertainties about criminality, settlement challenges, and pricing get replaced by a maturing ecosystem with an increasing market base of mainstream investors, the crypto space continues to present a new set of opportunities for both investors and consumers.

The rapid pace of increase in both systems and products is the most unambiguous indication yet that cryptocurrencies are coming of age.  

What is a Crypto Card?

crypto card is a payment method that enables any holder of cryptocurrencies to spend it directly without converting it first to fiat currency. These cards result from partnerships by crypto exchanges and significant card companies like MasterCard, Swipe, and Visa that facilitate processing transactions.

For a long time since their inception, the business of spending your cryptocurrency has been long and cumbersome. This involved first using a cryptocurrency exchange to convert your crypto assets into your desired fiat currency, followed by a long wait before your money reached your bank account. 

Besides being slow, the process was tedious, and, as a result, it wasn’t always easy to use your crypto funds as a means of exchange for your everyday uses.

Enter the crypto card, and users can now spend their cryptocurrencies directly without first converting them into fiat currency. Crypto cards come both as debit and credit cards offering users a wide array of options and possible benefits.      

How does a Crypto Card Work? 

Crypto cards work just like your regular payment card offered by any financial institution. It can be used for everyday purchases like your bank-issued credit or debit card. Most of these cards are accepted as a form of payment anywhere you can shop using your regular card.

Whenever you use any of these cards, the partnership between your crypto exchange and card providers enables the firm’s payment processor network to finish the transaction, thereby introducing greater shopping ease and convenience.    

Since they’re accepted anywhere, crypto cards are a more valuable and practical payment option. The cards automatically convert the crypto fund in your digital wallet into the specific currency required to make a payment.

Therefore, you can use it for your offline or online payments at most stores, including those that dine recognize cryptocurrencies. Besides offering additional benefits like crypto rewards when you shop in crypto at fiat currency stores, users can also make cash withdrawals at specific ATMs that support crypto cards.      

Crypto Credit Card vs. Crypto Debit Card

Crypto cards are available in both debit card and credit card formats and have most of their traditionally related functionalities. We’ll briefly dissect the two to help you understand their differences and functionalities so you can decide which fits your spending habits best. 

Crypto Debit Card

This debit card withdraws crypto funds directly from your digital wallet when you purchase. Most crypto debit cards facilitate accessing your digital wallet at ATMs or merchants that don’t usually accept crypto payments.

Nonetheless, the merchant receives their dues in their preferred fiat currency, meaning the system converts from your type of crypto to the specific traditional money. Moreover, various crypto debit cards enable earning cryptocurrency rewards from spending.   

How Crypto Debit Cards Work

As more merchants begin accepting other cryptocurrency payments, crypto debit cards make it easier for you to access your cryptocurrency wallet. It means you can use your card anywhere you see a sign indicating that those cards are accepted. Like any traditional debit card, crypto debit cards operate on significant networks like MasterCard and Visa.  

Take note, though, that you sell some of your cryptocurrency in exchange for fiat currency every time you make a payment using a crypto credit card. As a result, and depending on the laws within your jurisdiction, this could constitute a taxable event since you could sell at a higher or lower volume than you bought your crypto.

Furthermore, the conversion process could also incur a fee. If that’s the case, ensure that you keep proper records for tax purposes.

Crypto Credit Cards 

A crypto credit card is a classification of a credit card that enables the holder to earn cryptocurrency as a reward. Since cryptocurrencies are generally more volatile than other types of rewards gained from spending, it’s necessary to prepare psychologically for some level of volatility before you sign up for a crypto credit card. 

Like regular credit cards, a crypto credit card draws from giving the user access to credit. If given this card, you must repay your balance at the end of each month to avoid incurring interest charges.

Most settlements for purchases and payments related to crypto credit cards are done in U.S. dollars or other popular fiat currencies. However, some cards allow you to use crypto funds you have in any associated account.  

How Crypto Credit Cards Work

You earn rewards in cryptocurrency when you use a crypto credit card, similar to what happens when using most other credit cards. Every purchase or payment that you make earns you cryptocurrency.

For example, if your card offers 3% cashback when you spend in a restaurant, you’ll earn $3 worth of cryptocurrency if you dined and paid $100 – the $3 in crypto that you earned is instantly credited to your digital wallet.

#1. Coinbase Visa Card 

Coinbase Visa Card 

The Coinbase Visa debit card allows users to spend on different cryptocurrencies in their portfolios and earn rewards on purchases. You can spend your crypto anywhere. Visa cards are accepted, and they qualify to earn up to 4% in cashback.

Features include: 

  • No sign-up, annual, or monthly fees
  • Auto conversion of crypto to USD to facilitate purchases and cash withdrawals  
  • 2-step verification, instant card freezing, and contactless withdrawals 
  • Mobile app

The Coinbase crypto card is popular with institutional users and facilitates instant transaction receipts, spending summaries, and notifications through its mobile app. 

#2. Crypto.com 

Crypto.com 

With a global reach of over 10 million users as of July 2021, users of the Crypto.com card can buy and spend using over 100 cryptocurrencies.

The card offers up to 8% cash back on purchases made through the Visa-supported card. Uniquely, users can top up the card using over 20 fiat currencies in addition to crypto, and it is supported in at least 1,000 lounges at over 400 international airports.

Features include: 

  • Spend with crypto on Netflix, Spotify, Expedia, Lounge, Expedia, etc.
  • Free ATM withdrawals of up to $1,000
  • Earn up to 8% cashback in CRO (The card’s native token)
  • Mobile App

The crypto.com card is popular with merchants and regular shoppers and has at least five different card designs that offer other CRO cryptocurrency staking rewards at different tiers.  

#3. Wirex 

Wirex crypto debit card

The Wirex crypto debit card is ideal for non-U.S. users and allows cardholders to hold crypto assets in their accounts until they choose to spend using the card.

It’s a great card for any crypto enthusiast interested in holding on to their digital assets for as long as possible.

Features include: 

  • Up to 8% cash back rewards
  • Free ATM withdrawals 
  • Bridge assets between blockchains 
  • High limits, no fees

Users of the Wirex debit card can earn passive income by holding crypto in their portfolio. 

#1. SoFi

SoFi

The SoFi MasterCard presents unique perks and widespread usability, earning its place among the leading crypto credit cards. It offers between 1 and 2% cashback rewards and great flexibility for users who want to spend their crypto and add to their savings.

Features include: 

  • Sign-up bonus of up to $300   
  • Reduced APR when you pay on time 
  • No annual fees
  • 3 SoFi reward points for every $1 spent

SoFi offers reward point redemption via Bitcoin and Ethereum, even though redemption isn’t available in some U.S. states like Hawaii, Nevada, or West Virginia.

#2. Venmo Visa Credit Card

Venmo Visa Credit Card

Anyone already using the Venmo App can sync their account with the Venmo Visa credit card through which tracking purchases and monitoring rewards is made simple. The card has been customized with a unique QR that makes syncing hassle-free.

Features include: 

  • 1%, 2%, or 3% rewards based on different purchase categories 
  • No annual fees 
  • A sign-up bonus 

The Venmo card is an excellent way to fatten your crypto wallet almost risk-free as it combines convenience and financial payoffs besides being able to choose between bitcoin, Ethereum, Litecoin, or bitcoin cash. 

#3. Gemini Credit Card

Gemini Credit Card

The Gemini crypto credit card offers broad compatibility and a unique reward structure where rewards are paid automatically in Bitcoin or any supported over 50 cryptocurrencies.

Cardholders can benefit from a 3% cashback on all their dining purchases for a maximum of $3,000 annually, 2% on groceries, and 1% on other purchases.

Features include: 

  • A friendly user app 
  • No annual fee 
  • Transaction fees between 0.5% and 4% 

Users of the Gemini card earn automatic rewards, which they can withdraw in BTC or their selected cryptocurrency. 

What to Consider When Applying for a Crypto Card 

There are essential factors you need to consider when applying for a crypto card, as they will determine the availability and convenience for your use. Among the aspects you need to identify the best crypto card for you include the following:   

The Company Issuing the Card: Check what crypto card companies operate in your region before applying and whether it’s easy to buy or sell the cryptocurrencies the platform uses. Also, check whether they offer the specific services or flexibility you desire.  

Supported Cryptocurrencies: Check whether the card supports your cryptocurrency and whether their selection of crypto is good.  

Rewards: A sound crypto card has a good reward program that incentivizes its usage. 

Fees: The fees charged should be reasonable and affordable, mainly because there are cards that don’t charge fees.  

Tips for Choosing the Right Crypto Card 

Any avid cryptocurrency enthusiast would benefit from the access that crypto cards offer to their funds and for daily purchases and financial transactions. Like the traditional payment card your bank provides, crypto cards are easy to use and provide similar features. Some important points to remember are: 

Financial Needs: Since crypto debit and credit cards present different functions, advantages, and disadvantages, you want to make sure that you select the card that suits your specific financial needs. 

Spending Habits: It’s also required that you consider your spending habits and financial portfolio when choosing. Consider important factors like the card’s credit requirements, spending limit, regional restrictions, reward rates, transaction fees, and processing network. 

List of Cryptocurrencies Supported by Crypto Cards 

The list of cryptocurrencies supported by different crypto cards continues to grow almost daily. Below is a hand-picked list of leading crypto assets you can access via other cards: 

  • Crypto.com: Bitcoin, Litecoin, Ether, Ripple, PAX, TUSD, EOS, and XLM      
  • Coinbase: Bitcoin, Ethereum, and Litecoin
  • Nexo: Bitcoin, Ethereum, Ripple, and 14 others
  • Binance: Binance Coin

Benefits and Drawbacks of Using Crypto Cards 

Crypto debit and credit cards are still new financial products with numerous advantages and disadvantages. Some benefits and drawbacks of using them include: 

Benefits 

  • Spending crypto easily and quickly, even with merchants who don’t accept crypto 
  • Numerous cards support multiple cryptocurrencies 
  • High-class security features 
  • Crypto cashback rewards on most transactions

Drawbacks 

  • Cryptocurrencies are volatile, making them less stable than cash 
  • Most cards charge monthly transactions, conversion, and fees for ATM withdrawals 
  • Most cards have geographical limitations 
  • Crypto conversion may include a capital gains tax 

Next, we will understand how crypto cards impact credit scores.

Do Crypto Cards Impact the Credit Score?

Credit-Score

We’ve already said that crypto cards are similar to regular cards in all aspects, meaning that you must pay off your balances monthly with credit crypto cards. This way, you’ll avoid paying penalties like late fees or interest.

Crypto credit cards affect your credit rate just like your traditional credit card, and some have annual and transaction fees associated with them. It’s, therefore, vital for you to read the fine print of your selected card’s terms and conditions when applying. 

Author’s Note

Cryptocurrencies, once an ordinary curiosity, have gone on to disrupt and become a legitimate competitor to traditional fiat currencies.

While they’re still new financial products in their infancy, they’ve already shown great potential. A crypto debit or credit card will be an excellent entering wedge if you consider entering the crypto sphere. 

It’s necessary for anyone joining the crypto card fray to develop a healthy financial lifestyle and have a balanced budget before dipping their toes. That crypto cards have joined the growing list of payment cards is an exciting innovation as they bring many potential benefits.

However, just like with all other personal financial decisions, you want to select crypto cards that make sense to you. Also, remember the importance of spending responsibly, especially when enticed with potential crypto rewards for spending.

Crypto credit card debt isn’t a good idea since it could lead to heavy spending and eventually affect your credit score.   

Next, you can check out the best solutions for credit score monitoring.

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