Buying Stocks With Your Credit Card: Is It Possible?
There are several ways to use your credit card to buy some stocks. However, this can be challenging; so, it is essential to know what you will get yourself into If you choose to do so.
Buying Stocks Using A Credit Card
Several brokerage firms will not allow you to fund your account directly using a credit card to sell and buy stocks. Instead, they will make you fund your account using other means. For example, through a bank transfer, wire, or check transfer.
You can use an option to buy a gift card for Stockpile, an online brokerage that will allow you to purchase fractional shares. These gift cards are typically sold for about $1 to $2,000 and can even be redeemed for stocks. However, using this option means that you will have to pay a fee and a 3% credit or debit card fee for every gift card you will buy.
Another option is using your credit card to transfer funds to your checking account. Then, after a successful transfer, you can send the money to a brokerage account and invest. On the other hand, it is vital to know that your credit card issuer might charge you a balance transfer fee.
The transferred balance will start accruing immediately unless your credit card avails an intro of a 0% annual percentage rate.
Does it Impact Your Credit?
Using your credit card can make an impact on your credit score in many ways, regardless of what you buy or why you made a cash advance, or even a balance transfer.
If you apply for a new credit card, the issuer will have to make a hard inquiry. Doing so may negatively impact your credit score. The new account might also reduce the average age of all the credit accounts you own (this can also severely hurt your credit score).
It doesn’t matter if you use an existing or new credit card. Either way, your credit card balance can affect your credit score. It is essential to know that your credit card utilization ratio is composed of your credit card limits versus the balance. If you have a high utilization ratio, your credit score will more likely drop hard.
If you currently have a high credit card balance because of the stock you bought, your credit score could have a massive fall as a result. Your credit score can recover fast if and when you pay the balance. It will also help if you check out CreditNinja’s thoughts on managing a credit card and how to use it wisely, sans the significant risks. That way, you can protect your credit score from dropping.
The Risks Of Stock Purchase Using A Credit Card
The following are a few risks you should consider before you start buying stocks using your credit card:
Borrowing Money You Can’t Repay
It is vital to know that investing in stock means you are up for calculated risks. If you can’t afford the money you invest, you will likely end up with much higher interest on your credit card balance than what you can gain in your stock investment.
If you lose the money you have invested, you can face more debt in your credit card fees because of missed or late payments.
An average credit card interest can run above 16%. On the other hand, average stock returns tend to vary but are typically at about 7% to 10% for less volatile and long-term investments. Borrowing cash to invest in a stock market might cost you more in interest than any returns that you might see. If you want to invest in stocks, it will help to only put what you can afford and evaluate all the risks.
The Securities and Exchange Commission stated that most reputable firms do not permit credit card use in investing in stocks. Often, sellers who pressure clients into using a credit card most likely use the money for scams. It is vital to know that anyone who asks you to invest large sums of cash quickly usually doesn’t have your best interest in mind.
If you want to use your credit card to invest, you must monitor your credit account. Always be keen on questionable transactions. If you find anything that seems suspicious, report it immediately to your credit card issuer.
To Wrap It Up
When the stock prices are at their low point, it is recommended to make some investments. As an investor, you must know how to balance the risk versus the reward. And buying stocks using your credit card is quite a risky option. So, you must do some research and think about it thoroughly before you start buying stocks using your credit card.