Robinhood is an app that allows users to buy and sell stocks with minimal fees. Unlike other services, they don’t have a longer holding period before you get your money in your bank account or require you to hold a minimum dollar amount in the stock purchase.
Additionally, they are mobile-only, which can give younger investors more flexibility when trading their stocks.
Does Robinhood Affect Credit Score?
No, Robinhood will not affect your credit score. However, as with most financial services, Robinhood can affect your credit score in different ways. For example, when you’re in the process of opening a new account there are several that will impact your future credit score, such as if you opened it right away or applied for a loan three months later.
It’s often necessary to submit personal information for the company to open an account in your name. This information includes your social security number, driver’s license or state-issued ID card, date of birth, and mailing address.
Once you’ve successfully opened the account, it will be added to a credit report by a credit reporting agency such as Experian or TransUnion. If you have good credit, Robinhood will not affect your score in any way.
However, if you do have poor credit or no credit at all, Robinhood could be detrimental to your score.
When you apply for a financial service – more specifically an account with fluctuating debt – it is added as a “hard inquiry” on your report. This can be seen as ten times worse than a “soft inquiry”, which is when you check your score.
Each time you access your report, the credit bureaus will see these inquiries and display them in order of most recent to least recent.
This can have a negative impact on your score for up to two years from the day it was created. That being said, if you have bad credit, do not apply for Robinhood no matter how enticing the low fee trading is.
Although there are benefits to opening a new account with poor credit or starting to save money in general at a young age, it will most likely affect your score negatively if you have a negative history already affecting what used to be a good score.
Opening new accounts is something that can easily be avoided or delayed until your score has improved to an acceptable level. It’s not difficult to do – simply save the money you had planned on spending with Robinhood in high-yield savings account instead of putting it toward trading stocks. Once you have improved your credit, you can start using services like Robinhood.
However, if you have good credit and are already using the app, there is no need to worry about it affecting your score in any way.
Furthermore, if you have poor credit or no credit at all but are still willing to take the risk of opening an account with Robinhood after reading this article, it’s important to know that not all credit agencies will be the same.
While one may show your inquiries in order of most recent to least, another could do it in reverse – starting with the oldest first. If this is the case for you, it could potentially improve your score if you plan on applying for other services soon.
Also Read: How to Find Penny Stocks on Robinhood?
Does Robinhood Run A Credit Check?
No. Robinhood does not run a traditional credit check that most financial services do. This specific process involves looking at all three of your credit reports from the major bureaus, which is something Robinhood simply does not have to do.
In order to open a new account with Robinhood, you simply have to submit your social security number and mailing address.
In the future, if you start adding different types of investments such as options or margin trading, there is a chance that they may actually run a credit check on you after seeing how well you handle the stock market in general.
However, it is equally as likely that they may not. In general, there are two things Robinhood looks for in a potential customer before being allowed to use their services: your age and banking background.
In short, those under the age of 21 will most likely not be required to provide traditional proof of identity such as a driver’s license or passport.
Because of this, it’s quite possible that if you’re under 21 years old with a good bank account Robinhood may simply assume that your credit score is fine or non-existent.
When this happens, they will continue to use your banking history as proof of identity instead.
What Are The Factors Robinhood Considers?
While signing up for Robinhood, you will be asked a few simple questions that will help determine if your credit score is high enough to use their services. While the majority of these questions have to do with your age and banking history, there are two other questions that may require further investigation from the Robinhood team.
Also Read: Why Does Robinhood Need My SSN?
Does Opening An Investment Account Affect Credit Score?
No. As long as you have a good credit history, there are no further effects of opening up an account with Robinhood.
You won’t be denied service if your score is below the average, but you will most likely be required to provide more information during the account creation process in order to help them verify your identity.
Does Robinhood Affect Taxes?
No, Robinhood does not affect your taxes, but it also doesn’t help you during the process. Only investments which are sold by you are taxable.
Although they don’t charge any fees during the trading process, you are still required to pay capital gains tax for each trade that you make.
It’s important to remember that since this is a digital service, there are no physical cash trades being made.
This means that all transactions will be taxed as capital gains unless you hold an account with a brokerage firm that offers physical certificates.
Conclusion
In conclusion, it’s entirely possible to open an account with Robinhood without providing any information other than your social security number and mailing address.
While this is a great service, it could potentially become dangerous if you were to make larger investments without verifying your identity first.
However, if you’re under 21 years of age and have no credit history or proof of income, Robinhood may simply assume that your identity is totally fine and you will continue to trade without being pushed by a credit check.
While this may seem great on the consumer side, it’s actually something that needs to be taken more seriously on the company’s end.
In order to be safe, it’s always better to start with a verified account and stay safe on the stock market.
