(Newswire.net — April 29, 2020) — Although everyone has different circumstances, some recommendations apply to everybody if and when they ask financial experts for tips. The three main pieces of advice are sure to be:
- Make a budget and stick to it.
- Make sure your credit score is excellent and can be maintained.
- Make investments for your future.
However, some people worry that making investments could impact negatively on their credit score. Investments could turn out to be a good use of money in 10 or 20 years, yet your immediate financial health will be impacted by your current credit score. So, can investing impact your credit score?
How Do Stocks Affect My Credit Rating?
Usually, when people think about investments, they immediately think about stocks. But, surprisingly often, those people aren’t aware of what stocks are. Stocks are, essentially, shares in publicly traded companies returning dividends based on how well the company performs.
There are many different stock investment opportunities with some being more reliable than others. For example, investing in a Dividend Aristocrats ETF is considered to be a relatively safe investment, while other options are far riskier.
Although there is considerable fluctuation in the stock market in the short-term, stock investments have proven to be fairly reliable in terms of return since 1926, with the best long-term dividend stocks averaging around a 10% return each year.
At one time, it was only possible to make investments in stocks by signing up with a brokerage firm on Wall Street. Today, though, there are online stock-trading opportunities so you can control transactions yourself. But will selling or buying stock affect your credit score? The answer lies in your approach.
If you register for an online stock trading account, a hard inquiry will be carried out on your credit report by the company you decide to do business with. They will do this to check your identity as well as to check if you’re financially responsible. Bear in mind that a single hard inquiry will cause your credit score to drop by between one and three points, so if you register for several accounts you could find that your score is significantly impacted. On the other hand, if you register for a regular stock trading account with a standard brokerage firm, no hard inquiry will be needed and therefore, your score will not be negatively impacted.
Do Mutual Funds And Bonds Involve A Credit Score Check?
In general, bonds are considered to be quite a safe form of investment, although you’ll find the returns typically small when compared to stocks. If you make an investment in bonds you’re loaning the government or the company money, and they agree to pay it back with interest once the bond has “matured”.
When you’re buying most kinds of bonds, your credit score won’t be impacted. Even if the party selling the bond may run a credit check to verify your identity, it’ll be a soft inquiry that doesn’t lower the score.
When it comes to mutual funds, these are collections of several investment vehicles, with bonds and stocks included, that are designed to spread your risk over several investments for a greater chance of a positive return. Therefore, the rules above will also apply when you’re making this type of investment.
The Key Is Wise Investment
When you’re investing for your future, remember that making investments in bonds, mutual funds, and stocks won’t significantly damage your credit score as long as you avoid going into debt in order to cover your investments. Remember to never invest more money than you can afford to lose, and always prioritize paying off your debts before you make any kind of investment. With a sensible approach, you can increase your wealth tomorrow without damaging your credit score today.