Your credit score has a big impact on the overall health of your finances and a low score puts up a lot of barriers. We often talk about how difficult it is to buy a house or get a loan for a car if you have poor credit, but what about investments?
Investing your money is one of the best ways to improve your finances and be more secure in the future. However, if you are in a bad financial position already and your credit score is low, you will face a lot of hurdles when trying to get into the world of investing. This can lead to a vicious cycle because you cannot invest money to get yourself out of the financial hole that you are in.
Unfortunately, a lot of people are unaware of the effect that their credit score has on their ability to invest money until it’s too late. These are some of the ways that a low credit score can make it harder to make good investments.
You can’t get a mortgage for real estate investments
Real estate is one of the most popular investment opportunities out there right now. It is a great way to buy property, take care of it and then sell it for a nice profit when values go up. Unfortunately, if you want to get into the real estate investment game with your credit score where it is at right now, you will be waiting a while.
Unless you have the capital to buy a property in cash, which most people don’t, you will need a mortgage. Unfortunately, you won’t get one unless you can pass the credit check. The requirements will also be more stringent if you already have a mortgage on your own home.
You will need to build your score up first and get it above 650 before you can even begin the process of getting a mortgage. Since this is where the standard starts, it’s probably going to take a while for you to reach that tally unless you do something about it now.
You can’t take out a loan to start your own business
Starting your own business is another great way to invest money and make more of it. You can buy a franchise or try out something new that you are passionate about in hopes that the business takes off. If everything goes according to plan, you will be making a nice living doing what you love instead of working at a 9 to 5 that you don’t like.
Unfortunately, not everyone has the money to invest in their own business. Since you need some seed capital to get up and running, it is often impractical or impossible unless you have a loan or an investor that can give you the funds. Unfortunately, if your credit score isn’t good enough for a loan then your options are limited.
You can’t take out loans to put into other investments
If you find a good investment opportunity but you don’t have enough money to put behind it, you may consider taking out a loan. This is a great way to increase your money in the investment and maximize your returns. With a good business plan, you can use those funds to make even more money.
Unfortunately, not everyone has access to low-interest loans when they need them. Banks will do their own credit check before giving out any kind of loan so if you don’t have a good score you might be out of luck. This is why it is vital to always work on improving your credit and make sure that it stays in good standing, no matter how far down it may have fallen.
Investing groups often check credit scores
Investing groups are a great way to network and find lucrative investment opportunities. There are many different types of groups that you can be a part of and they keep you up to date with the latest market information. These groups can also help you find like-minded individuals that have similar goals when it comes to investing.
Many of these investment groups will actually do their own credit check before letting someone in. If your score is low, you might be blacklisted and not even be given a chance to invest with the group. There are also many groups that will only let members invest in their own deals so this could pose another problem for some.
This means that you’re missing out on a lot of valuable advice and insight, especially if you are new to investing and you need some guidance.
Some stock trading apps check credit scores
Trading stocks and shares is easier than ever because there are so many great apps that make it simple. You can place trades on your smartphone in mere minutes without having to talk to a broker or fill out a bunch of paperwork.
Unfortunately, there are many stock trading apps that will also check your credit score when you sign up. This means that if you have a low score, they might not let you participate at all. In order to trade with these apps, you will need a score of at least 700.
Although you can still find apps that will let you trade without doing a credit check, you are still limited in your options if your score is low. Usually, this means you are forced to trade on apps that charge higher fees, which eats into your investment profits.
You cannot pursue a career in investments with a low credit score
If you are relatively experienced in the world of investing, you might decide that you want to pursue a career in the sector. Unfortunately, you will face a lot of barriers because you need to get certified first. However, most of the bodies that award financial certifications will not approve you if you have a poor credit score.
Even if you are qualified, many employers will not hire you because it is generally a bad investment to do so. They need someone who can manage their money well but if they have a low score, it will reflect poorly on the company.
This means that many people are shut out of the industry unless they find an alternate way in, such as working for independent financial advisors or online brokerages.
How to improve your credit score
As you can see, your credit score plays a major role in the world of investing. If you want to get ahead and reap the benefits that come with good returns, it is vital that you work on improving your score.
There are many ways to do this but as long as you stay dedicated, you will find success. You can see these 7 steps to help repair bad credit if you don’t know where to start. As long as you follow these steps to the letter, you can improve your situation.
Often, people find it difficult to improve their credit score because they are trapped in a cycle of debt and they are reliant on it to cover their basic living costs. Any unexpected bills push them further into debt and make it even harder to improve their financial situation. In this instance, you should look at companies like Wise Loan, who offer responsible short-term loans to help people cover their costs. These kinds of loans can give you a bit of breathing space to help you get your finances in order and also build your score.
It’s also important that you focus on reducing unnecessary spending and living within your means. Often, people end up in a lot of debt because they are not in control of their budget and if you are currently reliant on credit to pay the bills, something needs to change.
How to practice cautious investing
Once you pay off your debts, you will have more expendable income that can be put into investments. However, you need to take things slowly and practice cautious investing so you can avoid getting into a bad financial situation again.
Make sure you stick with low-risk investments for the time being because it is important that you build up your portfolio slowly without investing your entire life savings. By taking things gently, you are investing in your own future and managing risk at the same time.
Consider speaking to a financial advisor too and getting a second opinion on your plans. They will be able to steer you in the right direction and ensure that you are not making any irresponsible investing decisions.
Finally, make sure that you diversify your investments as much as possible. By spreading the risk, you can protect yourself because if one investment goes bad, you still have others to fall back on. But if you put all of your eggs in one basket, you risk losing everything overnight.
Having a low credit score can make it incredibly difficult to invest your money and plan for the future. However, if you can fix your score, you will be able to start investing again. Just make sure that you take things slowly so you can remain financially secure and avoid any big losses.
(Disclaimer: This content is a partnered post. This material is provided as news and general information. It should not be construed as an endorsement of any investment service. The opinions expressed are the personal views and experience of the author, and no recommendation is made.)