If you have been buying and selling stocks for a long time, you have probably realized that having great credit is important, specially if you are using a Margin Account to buy and sell shares, day trading is not really something that I do much, but sometimes you buy a stock that goes up really fast and you find yourself in a situation that might force you to sell a stock for a higher price, there are many platforms like The Robinhood App that allow you to buy and sell stocks with no commission fees that also have Margin Accounts, this is a great option for people who have great credit and want to be able to add more money to their position without having to pay high interest fees. Today we are going to discuss the importance of having a great credit score and how you can benefit from this when buying and selling stocks.
Can I open a Margin Account even if I filed for Bankruptcy?
Filing for bankruptcy is never an easy decision, more so in recent times with rules having been made more rigid. Of course there is the factor of social stigma that plays on a person’s mind, but the fear of a battered credit report is perhaps even more maddening. It has happened many times in the past that once a person files for bankruptcy, his credit suffers so badly that it becomes difficult for him to secure a housing loan even at high rates of interest. However, it is not mandatory that credit rating should suffer badly always after bankruptcy. Let us have a closer look.
As per the rules, bankruptcy rules your credit ratings for no less than 7 years. The verdict of the court regarding your bankruptcy case is sent directly to the three major firms that give credit reports, and in your next report, the court’s ruling is reflected. If you had a decent financial transaction history in the past, bankruptcy eliminates all this record like your timely repayments to banks and other lenders. This obviously hurts your credit ratings and your FICO score may nosedive about a hundred points. However, in most instances it is seen that people who file for bankruptcy are also the people who have difficulties in repayments to banks and have already missed on their utility bills. When all this record gets erased, people are surprised to find that their credit score is not that badly affected, and in some cases, even improves a bit after they file for bankruptcy.
In any case, the effects of bankruptcy on credit report are not permanent and once your liabilities have been discharged, the negative impact of bankruptcy on credit report also begins to show a decline. If you are alert to the requirements of your credit report, you can take steps to start working to improve your credit score. The first thing you can do is to improve upon your credit worthiness. You must ask for latest credit reports from all three bureaus to check if your debts have been cleared with filing of bankruptcy which is a natural process. Now you have only a few debts remaining upon whom you need to concentrate by starting to repay them regularly. You will find that by doing so, your credit ratings improve as you are now considered as worthy of credit. Taking a new loan and servicing it regularly is another option that helps to improve your credit ratings.
Bottom line is, if you have filed for bankruptcy and you have a history of bad credit I highly recommend that you get your finances in check before even considering buying stocks, I would first pay off debt aggressively, once you do that I would open an emergency fund of at least 3 months of your current salary, paying debt guarantees a return on your investment and having a highly liquid account (checking) that will allow you to have access to money when you needed, once you do that then you can start investing in stocks even if you are using margin.
Does using a Margin Account or not using all of your credit affect your credit score?
It has become a fad among the population to keep more than just one credit card in their wallets. People with more credit cards are perceived as having a higher status forcing people to keep many cards at a time while keeping a few of them unused. Experts view this as bad for the health of your credit score and suggest cancelling all unused credit cards if the primary objective of a person is to maintain his credit score. It is better to keep cards open and not unused. What people do is to keep a card unused anticipating to use it only in a financial emergency. Ostensibly this is a clever move to bail you out from a situation where you run out of cash suddenly.
If there is no legal problem, or the credit card company is not charging any annual fee, there is no harm if you keep the card inactive. Zero balance cards do not hurt credit score so there is no use closing such credit cards. In fact, it is Credit Card Company or the bank that issued it that gets financially hurt because of no use and the card gets closed by the issuer.
When you close an account, your credit score falls slightly because the credit limit associated with the card is gone. Another ratio that is called utilization rate (balance to limit ratio) increases with closing of an account. This causes a setback and temporarily the credit score of a person suffers. In fact, if you need to apply for a loan in nearby future, it may not be prudent to go in for closure of any credit card accounts, even if they happen to be unused for a while.
Unused cards could hurt you financially if they are charging annual fees, and if you happen to have 4-5 unused cards, imagine losing out on around a hundred or more bucks just to keep unused cards with you. Credit card experts suggest closing out unused cards after following all requirements from the credit card company and never to close the oldest credit card in your possession.
No one can be sure of how FICO score works though there are always tips from experts on how to handle your credit cards to not let your credit rating affected. Among these tips is not to avail too many cards and to keep cards with you for at least a year before closing them.
Overall, you always want to maintain a good credit score no matter if you are planning on investing in the Stock Market or not, a healthy credit line is important to build more credit and to have credit ready to be used if needed, the key to having great credit is to pay back your debt, the faster you pay back the lower your interest rate will be, that is the key and the more you prove that you are willing to pay back the more you will be trusted
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