Can Investments Hurt Your Credit Score?

By Webb Ward

Posted: 5th May 2014 09:02

The main motivation for making a sensible investment is of course the raw financial benefit that it brings.  Hopefully the investment, whether it lies in shares, bonds, property or otherwise will turn in a profit.  However, an often overlooked side effect of investment activity is the impact that it can have on your credit rating.  Of course, this can be crucial in accessing the capital necessary for future investments.  As such, the impact of investment on a credit score can have crucial long-lasting financial implications.
 
The good news is that in general, investing in stocks, shares or bonds should be a boost for your credit rating.  Unlike a regular savings account, you can usually expect a better return on stocks, even on low risk options.  In addition, you can also expect to receive regular dividends, which can add up to a nice addition to your income.  Both of these factors can improve your overall finances and will likely be viewed favourably by any potential lender.  Most will look at your crucial debt-to-income ratio as an important indicator of ability to repay a loan.  However, the credit report itself is also vital as it essentially weighs up your financial reliability, listing all of your credit dealings.  Therefore, keeping track of your report and its accuracy is crucial.  You can find out how to easily access your credit score by visiting http://www.creditexpert.co.uk/credit-score.aspx
 
Of course, it is worth remembering that credit scores are designed mainly for consumers, rather than investors whose financial behaviour is very different and so there are some important factors to bear in mind.  For example, a credit report will likely detail how much of your credit limit you have used on a credit card.  In general, lenders like to see that this is generally below 10 per cent of the limit.  This can be a problem for investors and small business owners who may well need to make large payments from time to time. 
 
Investors will also likely find that their tax returns are more complex.  However, it is vital to keep on top of these to make sure that they are accurate and that HMRC is always paid on time.  A late or outstanding tax payment will not look good in a credit report.  It doesn't matter how complex your investments and tax calculations may be, a credit report is very unlikely to take this into account.  It is also tempting for investors to open and close accounts with regularity or to be forever applying for credit.  Although it may be the reality of the investment world, this kind of hyper-activity is likely to appear suspicious when expressed as part of a credit report. 
 
Of course, property remains one of the most common and reliable forms of investment.  While being a home-owner in itself is likely to be a positive indicator of financial responsibility, there are slightly different credit implications if you have purchased a property purely as an investment.  In all likelihood, if your property is an investment, then you will probably require a higher credit score than you would have needed as a resident owner in order to receive a loan for an additional property.
 
All in all, although investments should count in your favour when it comes to compiling a credit report, there are some specific factors to be aware of and to take into consideration.

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