In this article:
- When Buying Stocks Could Affect Your Credit Score
- 5 Factors That Affect Your Credit Score
Buying stocks and other types of investments doesn't directly affect your credit report or credit scores. However, applying for a margin account—an investment account that has a line of credit—might impact your credit. Additionally, investors need to consider the risk they're taking on and how losing money could make it harder to pay other bills, which could impact credit.
When Buying Stocks Could Affect Your Credit Score
You can buy stocks using different types of investment accounts. Tax-advantaged accounts, such as a 401(k), IRA or HSA, can be good options. Review and understand the requirements, limitations and tax implications before starting. You can also open brokerage accounts to buy and sell stock.
There generally isn't a credit check to open one of these accounts, and the accounts aren't reported to the national consumer credit bureaus—Experian, TransUnion and Equifax. As a result, they don't show up in your credit report. Nor will they impact your credit scores, since score calculations only consider information that's in your credit report.
One exception may be if you apply for a margin account, which is a type of brokerage account that gives you a line of credit you can use to buy stock. Some companies may perform a credit check when you apply, and that could hurt your credit scores a little if it results in a hard inquiry. But any impact typically only lasts a few months.
Margin accounts let you borrow money using assets in your account as collateral. Getting margin loans and using them to buy stocks won't impact your credit. Just be sure to maintain enough funds to meet minimum margin requirements. In some cases, you could wind up losing more money than you have in your account. If you can't repay money owed in a margin account and the company sends or sells the debt to collections, that could be reported and hurt your credit.
However, what generally happens is that the company monitors how much you owe and your overall account balance. If the value of your portfolio decreases and there's a margin call, you could have to deposit more money into your account or the company may force you to sell investments to decrease or eliminate the chance that there will be an unpaid debt.
5 Factors That Affect Your Credit Score
While buying stocks generally doesn't impact your credit score, there are many other financial moves that can affect your credit. These are commonly grouped into five categories:
1. Payment History
Your history of making or missing payments on accounts that are reported to the credit bureaus is one of the most important factors in your credit scores. This includes your payment history on credit cards, lines of credit and different types of loans, such as personal, student, auto and mortgage loans.
With Experian Boost®ø, you can add your utility, phone and select streaming service payments to your Experian credit report. The presence of these payments can help improve your overall payment history, which may increase your credit score.
Missing payments can hurt your score. Having accounts sent to collections can also hurt your score, even if the original account isn't reported to the bureau (such as with a margin account). Bankruptcy filings also typically have a major negative effect on your scores.
2. Amounts Owed
The amounts you owe relative to your loan's original balance and credit card's credit limit are also important scoring factors. Your credit utilization ratio is one of the few important scoring factors that you may be able to change quickly.
For example, paying down a high credit card balance could lower your utilization ratio and help your credit. As a rule of thumb, keeping your utilization ratio under 30% can be a good goal. But a lower utilization rate is even better.
One tricky part is that credit card balances are reported around the end of the billing cycle, which means you can have a high utilization rate even if you pay your bill in full each month. You may be able to lower your utilization by paying down your balance throughout your billing cycle.
3. Length of Credit History
Having a lot of experience with credit could help your credit scores. The scoring models may consider the average age of your accounts, as well as the age of your newest and oldest accounts. Closed accounts can continue to impact these factors as long as they stay on your credit report, which could be for up to 10 years after the account is closed.
4. Types of Credit Used
Additionally, having experience with installment and revolving accounts could help your scores, although it won't necessarily be a major factor. But, in some cases, your experience with a particular kind of account could be more important. For example, if you apply for an auto loan, your history with other auto loans could be more important to a lender than your history with other types of loans.
5. New Credit
Applying for a new credit account might hurt your credit scores a little if the creditor checks your credit with a hard inquiry. It's generally a minor scoring factor, though, and you might be able to overcome a small score drop within a few months if you can make your new account payments on time and keep your utilization rate low.
Monitor Your Credit Score for Free
If you want to see how something impacts your credit scores, you can sign up for free credit score tracking and alerts from Experian. You'll also get insights on which factors are influencing your score the most, your overall utilization ratio and the average age of your oldest credit accounts.
