Credits scores are not supposed to be affected by one’s investment decisions, and vice-versa. However, there can be connections between the two. Some of those connections can even be strong enough to have a significant influence on our financial future. In order to explain and establish this relationship between the seemingly unrelated aspects of personal finance management, a discussion along the following lines will be necessary.
Understanding the Credit Score: A Clear Definition
Most of us already know what a credit score is, but only vaguely so. A credit score is, by definition, a number that determines your credibility to lenders, including but not limited to banks, credit card companies and other financial institutions of the kind. If you have managed to maintain a high credit score, it will show to the lenders that you are capable of managing loans, investments and finances properly.
Depending on how high/low your score is (300 – 850), the following advantages/disadvantages will make themselves felt sooner or later:
The lower someone’s credit score is, the lower are their chances of getting approved for loans
Even if a loan is granted to someone with poor credit history, they will have to pay very high-interest rates
On the other hand, someone with a high credit score will be charged interest at the lowest possible rates
Contributing factors that are taken into account before calculating someone’s credit score are as follows:
History of timely payments and repayments contribute 35%
The total amount in debt at that moment is taken in to calculate 30% of the total score
How long the individual has maintained his/her credit history contributes 15%
The number of newly incurred credits/debt accounts contributes 10%
All other debts such as mortgages and credit card bills determine the remaining 10%
It should once again be pointed out that investments and wealth accumulation are not directly contributing factors that affect our credit scores.
Unpaid Traffic Violations Will Lower Your Credit Score
When someone thinks of factors that could be lowering their credit score, unpaid speeding ticket offenses are generally not considered. It’s true that your traffic violations and fines shouldn’t make their way onto your credit report, but that’s only true as long as you manage to pay them in time. On failing to pay for one or multiple speeding ticket offenses, your credit score will suffer, and the violation will be marked as such by credit unions, under failure to pay/repay dues.
It’s not just about speeding ticket offenses either, because anything and everything from being caught without a seatbelt on, to running a red light can eventually impact your credit score. As long as it incurs a fine due to violation of the respective traffic rule/rules, the ticket will need to be paid within the due date.
To make sure that you are currently not losing your financial status on account of forgotten, speeding ticket offenses, visit PublicRecordsReviews and check for unpaid speeding tickets and other pending fines online. In fact, it is possible that you may get a more comprehensive idea regarding your own financial perception (as seen by others) and history from the website. It’s easier to make financial decisions about investments when you know exactly where you stand financially.
Impact of a Hard Inquiry: Credit Scores and Stock/Forex/Bond/Mutual Fund Investments
If you are planning to invest in the stock market or in forex, your broker may run a credit check, which would be considered as a hard inquiry. As a result, it will affect your next credit score, in addition to being marked as so on your credit history. However, brokers can or will only check an investor’s credit, if they have opted to open a margin account with them. The same applies to bonds and also if you use your mutual funds as collateral for opening a margin account.
Margin accounts are created when the brokerage itself pays for a portion of the investment, and sometimes, the full amount. As this is essentially a loan as well, the credit check is unavoidable. If you don’t have a good enough credit score, the margin account may not even be granted, or you might have to pay a larger portion to the brokerage than normal. Furthermore, an already low credit score might be lowered by a few more points every time an agent or any other party conducts a hard inquiry. On the flip side, investors with a good credit history are much less likely to be affected by a hard check or two.
Margin accounts are necessary tools used by professional investors regularly, since putting their own money on the line is not always a good option for high-value investments. In other words, if you want to see some serious returns from such investments, you will need to maintain a decent enough credit score.
