Courtney Myers Blog | Investing in Stocks and Bonds: How the Process Could Affect Your Credit | Talkmarkets

Investing in Stocks and Bonds: How the Process Could Affect Your Credit

Date: Wednesday, August 15, 2018 10:21 PM EST

Whether you’re just starting out on your investment journey or you’re a sophisticated and mature finance expert, there are three basic principles that most industry professionals will maintain are key to long-term financial success. First, it’s important to make a budget as early as possible, then determine to stick to it. Second, you should monitor your credit score carefully and try to keep it as high as possible. Last, it’s important to keep an eye on the future and invest smartly and strategically.

Yet, what do you do if your investment pursuits cause your credit score to drop? How can you work fervently toward one goal, even if it means sacrificing another? This could be a reality if you invest in stocks and bonds that ebb and flow in their market performance. While in the long run, they may be smart investments, your losses affect your credit score in the short-term. To that end, let’s discuss a few of the most common investment avenues and the difference they may play in your score.

Stocks

In short, investing in the stock market means buying shares in companies that trade publicly, then earning a dividend based on how that company performs. If you choose to invest in the stock market, you do so understanding that it fluctuates. That’s why assessing the level of risk that you’re comfortable taking on is an important first step when designing your portfolio.

While traditionally, you would work through a brokerage firm to initiate your investments, these days it’s often as simple as hopping online and creating an account to trade stocks. Even if you decide to go the electronic route, the firm you work through will still run a report on your credit before moving forward with the process.

This is done to ensure your identity. It also helps the firm to verify that you are dependable with your finances and are a trustworthy trader. However, keep in mind that this check into your credit score is known as a hard inquiry, which could lower your score by a few points. That’s why it’s important to be strategic with the firms you sign up with. Keep it as minimal as possible, as several hard inquiries could significantly affect your credit score overall. However, the very tool that could lead to this issue -- the internet -- could also help you turn the situation around. Today, there are many reputable online companies offering credit repair services in conjunction with the major reporting bureaus, so you can take proactive steps to reverse any damage done.

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Bindi Dhaduk 5 months ago Member's comment

Interesting.

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