Credit score and investing

If you’re looking to get into investing, the first thing you should be investing in is a bit of time to get to grips with the basics and how different types of investments can impact your credit scores. Loqbox is here to help you unpack the essentials.

Is investing right for me?

Investing has a bit of a sexy reputation of ‘how to get rich, fast’. But the reality of investing is the complete opposite.  It’s slow, 5-10+ years, and even then there are no guarantees you’ll get the return you hoped for.

But if you do feel you want to start, investing should only be considered after you’ve achieved the following things:

1. You’re not in any debt (including overdrafts)
   
   
2. You have an emergency fund saved up (3-6 months of outgoings)
   
   
3. You are comfortably saving towards your long-term goals
   
   
4. You have income insurance and a pension in place
   
   

Only if there’s money spare after steps 1 to 4, do you realistically have money to invest.

What is investing? Is it a good idea?

First, let's get to grips with what we mean by investing. Much like saving, investing is a way of financially protecting your future. The difference is that when you invest your money, you are putting it to work for you rather than holding it in a savings account.

Investing money comes with risk

Unlike with savings, when you invest your money, you don’t really know what return you will get. In fact, it is possible that you will end up with less than you put aside in the first place if the value of your investment drops. However, the good news is that there’s also a chance that you’ll earn a lot more than the interest you’d make on your savings.

You can invest in any number of different things, from property, to shares, to cryptocurrencies like Bitcoin. Whichever you choose, the goal is to grow the value of the thing you invested in beyond what you paid for it. Hopefully by a lot!

It’s important to say that investing always comes with an amount of risk. It’s best to be comfortable with your finances before you start.

Does investing affect your credit score?

Typically no, investing in stocks and shares doesn’t normally have any impact on your credit score because this activity isn't listed on your credit report.

When investing, there’s no record of any borrowing, therefore it isn’t considered when the credit reference agencies calculate your credit score. So the act of investing neither helps or hinders your credit scores.

It is also worth mentioning that you are unlikely to be credit checked when you open investment accounts*.

*One exception to this is ‘margin accounts’. These are investment opportunities where you actually borrow the money that will be invested. It is common for you to get a hard credit check for a margin account. This can come at a heavy risk if your investments drops in value though, so we don’t recommend you invest with margin accounts.

Does investing in crypto affect credit scores?

Not directly, no. Your credit report doesn’t hold any information about the money you hold in cryptocurrencies, like Bitcoin, Ethereum or Tether. In fact, your credit history doesn’t have any information about your current accounts, investments or savings accounts.

Wait, we said cryptocurrencies don’t affect your credit score ‘directly’. So what’s the catch? Well, it's possible to invest with money you've borrowed on credit cards (definitely NOT recommended!). But if you did, those debts could hurt your credit score. Read more about credit cards and credit scores here.

There are also cryptocurrency investment scams to be wary of. While many scams are protected under Section 75 of the Consumer Credit Act, which lets you raise claims against credit providers, cryptocurrency scams are not currently covered. Again, any debts built through scams could then show up on your credit report.

“I was hoping investing would build my credit score, what else can I do?”

If you’ve been Googling “does investing affect credit scores” in the hopes of giving your credit score a boost, then you’ve come to the right place. Loqbox specialises in helping people to build their credit scores and their financial wellbeing at the same time.

‍If you’re keen to improve your credit score and financial know-how, we can help. Our members have reported up to 300 points in the first three months of using Loqbox, and by using all our credit-building tools at once you could see the best results.

Use your simple £2.50  week membership payments to boost your credit score with Loqbox Grow; grow it further by saving with Loqbox Save; or even get your regular rent payments to positively count towards your credit report with Loqbox Rent!