You want to open your own online stock trading account, but you're worried that doing so will damage your credit report. It's true that online stock trading companies will check your credit before signing you up. And it's true, too, that these checks will show up in your credit report. But there's good news, such a check will have little negative impact on your three-digit credit report.
Stock trading companies do check your credit before opening an account for you, and this inquiry will show up on your credit report, but has very little impact on your credit score.
When you sign up to create an online stock trading account, the company offering this account will check your credit history. These companies want to know that you are who you say you are. They also want to make sure that you have a history of paying your bills on time and not defaulting on your loans.
Why Credit Score Matters
Lenders of all types, whether they're originating mortgage, auto or personal loans, rely on your three-digit credit score to determine how likely you are to default on your payments. If your score is high, it indicates that you have a history of paying your bills on time. If it is low, it suggests that you have a history dotted with missed or late payments.
If your score is too low, lenders won't lend to you. If you do qualify for a loan with a low credit score, you'll have to pay higher interest rates. In general, lenders reserve their lowest interest rates for consumers with credit scores of 740 or higher on the popular FICO credit-scoring system.
What Impacts Your Score
Several factors impact your credit score, according to the myFICO.com website. Late payments, missed payments and negative judgments – such as housing foreclosures or bankruptcy filings – will drop your score. Your score will also fall if you have too much credit card debt. Certain types of credit inquiries – though not all of them – will hurt your credit score. This includes inquiries from companies offering online stock trading.
The good news is that the inquiries made by online stock trading companies will have little impact on your credit score. MyFICO.com says that credit inquiries generally drop people's credit scores by a negligible amount.
The more serious credit inquiries come from credit card companies. If you open too many credit cards at once – and all of these credit providers will check your credit – the credit bureaus become nervous. They view customers with too much access to credit as having higher chances to run up overwhelming credit card debt, something that could result in missed payments as consumers become burdened with high credit card bills.
- MyFICO.com: What's Not In Your Credit Score
- Lending Tree: How Do Stocks, Bonds and Mutual Funds Affect Your Credit Score?
- CreditCards.USNews.com: What Is a Credit Inquiry?
- Discover.com: Why Does My Credit Score Matter?
- Fair Isaac Corporation. "What is a Credit Score?" Accessed Oct. 11, 2020.
- VantageScore Solutions, LLC. "Who Uses Credit Scores?" Accessed Oct. 11, 2020.
- VantageScore Solutions, LLC. "Free Score Providers." Accessed Oct. 11, 2020.
- Fair Isaac Corporation. "What's In My FICO Scores?" Accessed Oct. 11, 2020.
Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.