Do Stocks Affect Credit Score?


If you’re interested in investing in the stock market, it’s essential to know whether it could have a negative effect on your credit score.

Your credit score reflects your financial habits and influences how much you can borrow and the types of credit you can take out. A low credit rating can have a detrimental impact on your life - without a decent score, you won’t be able to have a mortgage, take out a car on finance, or even have an overdraft. 

Let’s get to the following commonly asked questions:

  • Can a stock mess up your credit?
  • What items do not impact your credit score?
  • What affects your credit score the most?
  • Does what you buy affect credit?
  • What will ruin your credit score?

Can a stock mess up your credit?

Whether a stock affects your credit rating depends entirely on what method you use to buy and sell stock.

For example, if you make an account with a brokerage firm for a stock trading account, the firm will not perform hard credit inquiries, so there won’t be a negative effect on your score. 

However, there are instances where buying and selling stocks could mess up your credit. 

If you start an online stock trading account, the companies you associate with will check your credit by running a hard inquiry on your credit history. This is to check whether you’re good at managing debt and if you haven’t frequently missed payments. 

Typically a hard inquiry can hurt your credit score, dropping it by around one to three points. Multiple hard inquiries can negatively impact your credit. 

Similarly, if you apply for a margin account, which allows you to buy stock from borrowed money, a credit report will be run. This could influence your credit score. 

What items do not impact your credit score?

Not every item or thing you buy will change your credit score (or FICO score), despite impacting your personal finance. In fact, only having one line of credit can actually cause a low credit score. 

Here are the things that won’t impact your credit scoring

  • Paying with a debit card
  • Getting married or divorced 
  • Being denied a credit card
  • Student loans 
  • Investing in stocks through a brokerage firm
  • Debt consolidation loans

What affects your credit score the most?

Payment history has the biggest impact on credit reports. If you frequently make a late payment, it could have a detrimental impact on your score. If you struggle with this, we recommend using budgeting apps. 

The factors that negatively affect credit checks are:

Credit card debt

Having an active credit card balance won’t necessarily affect your credit. It will only damage your FICO scores if you’re not paying on time. 

If you don’t pay your bill set by credit card companies every month it will impact your credit score. On the other hand, if you have credit card debt but always pay your bill, it will actually improve your credit score 

A limited credit mix 

A credit mix refers to multiple lines of credit, like various cards, loans, and investment accounts. It’s good to have a solid investment plan and savings goals with an established savings account. 

Lines of credit include installment credit, revolving credit, and open credit.

Mortgage refinancing

If you decide to refinance your mortgage it could have a negative impact on your credit score, but only temporarily. A mortgage lender will conduct a credit check when assessing your application which is recorded on your report. This check will stay on your score for over a year. 

Be aware that refinancing will influence your mortgage rates, so it might be a good idea to use a mortgage calculator to assess the potential change to your monthly repayments. 

Credit utilization rate

A credit utilization ratio is the amount of revolving credit used divided by the total amount of credit available. 

A high credit ratio means you’re borrowing a high percentage of what’s available to you and this will harm your score. If you’re borrowing too much, you could be faced with a low credit score. 

Stock investing 

Investing in the stock trade won’t necessarily affect your credit score, for example, if you use a brokerage account. However, it might affect your score if you invest in stocks using your available credit. 

By making a stocks account you’ll face hard inquiries which will have a short-term effect on your scoring, lasting for up to two years. 

Does what you buy affect credit?

The items you buy or the stores you buy from will have no effect on your score, as credit bureaus don’t check individual purchases made using your bank account or credit cards. So there’s no need to worry about your personal buying choices. 

For example, if you take out a personal loan to pay for unforeseen bills or to go towards debt consolidation, there will be no record of this to bureaus when monitoring your credit. 

What will ruin your credit score?

The main thing that will ruin your credit score is making late payments and allowing debt to pile up without attempting to pay it off. Even one late payment can negatively impact your score depending on how your credit score is calculated. 

 For instance, if you have multiple credit card debts at above 80 percent credit utilization and you miss many monthly repayments you’re hurting your credit.

If this is the case, you’ll want to start thinking about debt consolidation. Methods you can adopt include: 

Don’t let the fear of bad credit stop you from stock investment

Investing in the stock trade is an effective way to diversify your finances and set you up for a successful future. 

While initially setting up a stock-trading account will lead to hard credit checks that impact your score for up to two years, stock investment won’t have a long-term effect on your rating.

Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs, or financial situation.

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