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Why Investing Does Not Impact Your Credit Score

Your credit score is determined by credit (i.e., debt) related factors like your balance and payment history. As such, investing doesn’t directly impact your credit score (except in rare, specific circumstances).

What is a credit score?

Your credit score is a three-digit number that tells creditors how well you manage your debts. Anytime you take out, use or make payment on a debt, your lender reports your activities to the credit bureaus. They compile this information into a financial history of your debts and payments – your credit report.

The information in your credit report then feeds into your credit score. The higher the score, the better your credit, and the less risk you pose to lenders.

Factors that impact your credit score

Most people have several credit scores issued by different companies (the big two being FICO and VantageScore). Though their weighting varies slightly, credit scorers essentially measure the same five factors, including your:

  • Payment history. This factor alone usually makes up 1/3 of your score. Missing a payment can substantially lower your score for several years.
  • Credit utilization ratio. The more you borrow against your revolving credit lines (like credit cards), the riskier you appear.
  • Credit age. The longer you’ve used credit responsibility, the better you look.
  • Credit mix. Using several types of debt at once shows lenders you’re able to meet your debt obligations.
  • New credit inquiries. Asking for new credit is the only way to get credit. But asking for too much, too quickly suggests that you’re desperate to borrow money. New credit inquiries have the smallest impact on your credit and usually fade within a few months.

Investing is not on that list

As it says in the name, your credit score is only impacted by your credit – debt – usage. Since investing doesn’t usually involve you taking on debt, your investment activities shouldn’t impact your credit score.

In fact, your brokerage usually won’t even check your credit score when you apply to open an account. It also won’t report your investment activities to the credit bureaus, even when you lose money.

When investing can impact your credit score

Rarely, investing activities can impact your credit score. The primary example is when you open a margin account.

Margin accounts let you borrow money or securities from your brokerage. Since some brokerages consider these accounts “loans,” they may check your credit before opening your account. Typically, these checks drop your score 5-10 points for just a few months.

Investing may also lower your score if you tie up too much cash in your accounts.

For instance, if you lose your mortgage payment day trading, your mortgage lender will report the missed payment. Or, if you tie up your emergency fund in poorly-performing assets, you may take a loss when you need cash the most.

Try Q.ai, a credit impact-free investment app

Like other brokerages, opening or even applying for an account with Q.ai won’t impact your credit score one bit. Our wide range of unique investment opportunities – bundled into handy Investment Kits – let you invest where your values, goals and dreams lie.

We make it easy to invest and build wealth like a pro at a price anyone can afford.

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