Does Robinhood Affect People’s Credit Score? (Full Details)


Robinhood is a California-based investment company that wants to bring stock trading to everyday people without a cost. And in large part, that’s exactly what they’ve done.

Robinhood has made it really easy and accessible for every day Americans to get their feet wet with trading and investing in stocks.

As Christopher Smith states, “It’s great for introducing people to the concept of investing in the stock market and, hopefully, to get them thinking about long-term financial goals.”

With that said, there are several trading platforms on the market today, but if you’ve chosen to trade on Robinhood, you may have wondered if trading with Robinhood will impact your credit score, and in my opinion, that’s a very valid question.

So here’s the thing.

Robinhood does not report to the credit bureau because investing in stocks does not appear on a report. Therefor, using Robinhood as your trading platform of choice should not have any affect on your credit score. 

In saying that, you may have questioned why Robinhood requires you to provide your social security number. Well, this is actually to verify your identity and for tax purposes. In addition, they must give their users IRS Form 1099 each year. If you are making short-term or long-term gains on your investments, you will be required to pay taxes on the returns.

So now we know opening an account with Robinhood won’t negatively impact your credit score, but what factors do? Well in the next section will talk about that a little more.

Related Financial Geek Article: Can You Lose Money with Robinhood?

What Factors Do Affect Your Credit Score?

A credit score is a 3 digit number that lets lenders know how well you manage your debt and other finances. The following five factors have an impact on this score:

  • 35% – payment history of accounts
  • 30% – total debt versus your credit limit
  • 15% – length of your credit history
  • 10% – new credit accounts
  • 10% – credit inquiries and the mixture of credit accounts

As we can see from the percentages of how credit scores get determined by Fico and Equifax, investing in stocks on Robinhood really won’t affect your credit score. 

If you do plan on joining a stock trading company like Robinhood, your inquiry may show up on a credit report, but the impact on your score is low – if anything at all.

Do You Need a Good Credit Score for Robinhood?

According to research, 43% of Robinhood users have a credit score below 650.

So although Robinhood traders have “fair” credit generally, they are lower than average and tend to be lower than even those who are just beginning their credit history and would naturally have lower scores to start.

The Motley Fool

However, Robinhood does not require its users to have a good credit score. In fact, most of the time they won’t even check it. 

Now this may be different when you sign up on other online stock trading companies with investment platforms that require credit checks, including your credit history and credit score. But that may only occur when you use margin for trading.

In fact, Robinhood may request a credit report for Robinhood Gold clients who are requesting to trade on margin.

So let’s talk a little more about that.

Robinhood and Margin Trading

Robinhood does in fact offer margin trading under the Robinhood Gold package, which allows people to invest in stocks using money borrowed from the company. With that said, margin investing comes with many risks and interest payable on the borrowed amount, so you must conduct your due diligence before considering this investment approach.

Robinhood Financial And Robinhood Securities Customer Margin And Short Account Agreement state the following:

“Robinhood is authorized, in its discretion, should Robinhood for any reason deem it necessary for its protection to request and obtain a consumer credit report for the Customer.” 

This means that, if necessary, Robinhood can verify your credit score to ensure you can pay back borrowed money used for investing. However, this only applies to cases involving margin trading, and the agreement has no bearing on users of ordinary investment strategies.

In other words, if an investor wants to use their own money for trading (which I’d highly recommend for all beginner investors), then there would be no need for Robinhood to obtain any credit report as the investor isn’t borrowing any money.

The Bottom Line

And that’s it folks!

At the end of the day, you shouldn’t be worried about your credit score if you want to open a Robinhood investment account as they won’t check it unless you register for margin trading.

To sign up for the standard Robinhood plan, all you have to do is add your personal information, verify your identity, and then load your account with at least $10. 

Pretty simple, hey?

As always, thanks for reading and I hope you learned a thing or two along the way!

Geek, out.

Noel

Noel is the founder and main contributor for his blog - Noel's passion for personal finance has helped him amass over 600k readers to his Financial Geek blog.

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