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Buying stocks with a credit card is known as a margin purchase. However, most people worry about buying stocks with their credit cards. They are not sure if it is the right thing to do because of the risks involved.
Stock investment should be a calculated risk. A major advantage of using your credit card to buy stocks is that it improves your credit score and it can earn you some rewards such as cashback.
However, a disadvantage is that if you lose money with your investment, there is an added cost you have to address on top of the money you already lost. As a marketer, you must understand the factors involved in buying stocks with credit cards.
Understanding the market you intend to venture into is key to calculating whatever risk you are taking. Do not venture into any form of investment just because it is trending and everyone else is investing.
Can Buying Stocks With Your Credit Card Affect Your Credit Score?
Before you make any purchase with your credit card, it is important to understand how it affects your credit report and credit score. For example, stocks are an excellent way to make good profits but purchasing them with credits could affect you negatively.
Buying stocks with credit cards may incur more costs, and if you lose the investment, you may not be able to repay the credit. If you cannot repay the loan, this will affect your credit score.
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Generally, buying stocks has no direct effect on your credit score. However, using a margin account for the stock purchase may require a hard inquiry. This means a credit check will be done to approve the stock purchase. In most cases, a hard inquiry may result in you losing a few credit points. So, you must consider this disadvantage before applying for a margin account.
Should you lose points due to bad investments, there are always cheap credit repair services to fix your report and score. These services help you look out for inaccuracies that can be mended and report it to the bureau to improve your overall score.
How to Buy Stocks With Credit Cards
Buying stocks with a credit card is quite fast and straightforward. In addition, when you use your credit card, the broker can quickly process payment, saving both of your precious time.
There are two common ways to use your credit card for this purpose. First, you can take a loan, and second, you can get a cash advance.
Once you are sure that you want to go with the option of using credit cards to buy your stock, it is quite easy.
You first of all need to be sure your credit card company allows you to buy stocks. Some companies do not, and you will need to confirm if yours does. If they don’t, you might have to buy gift cards that you will use to pay for your stock.
You need to confirm if the broker you intend to use to buy the stocks accepts cards. If they do, great. Next, you will need to verify if they are a legit company, and you are not likely to be scammed using your details.
All you have to do after that is provide the information needed. Then, your broker will confirm the payment. The transaction usually does not take long.
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Credit Card Loan
You can use a credit card loan to borrow over your card’s credit limit. This will enable you to get a cash deposit in your account if the broker requires bank account funding. You will repay the loan in agreement with the credit agencies at an interest rate. This rate may be higher than regular personal loan rates.
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Cash Advance
Using a cash advance allows you to get funding from your credit card. You can use an ATM or bank withdrawal to get the cash. Cash advance interest charges start counting as soon as you withdraw the cash.
When it comes to stocks, there are certain things marketers need to know. One of the most important is whether or not the company offers credit card services. That can be good or bad news for consumers. Marketers need to understand the implication of using their credit cards to buy stocks. They include:
- You will be charged a fee. Credit card companies usually charge an advance fee on cards used for stock purchases.
- Some companies charge tax. Capital gain taxes are levied on long-term investments. You will be charged for your long time stock investment
- It would be best if you were consistent in paying off your card. Failure to pay off will lead to having a bad credit score.
- Not all brokers accept card payments. Most brokers will rather take a transfer or cheque than accept payment with a card. It will also affect the number of stocks you can buy.
- There is a possible risk involved. You might be defrauded by the information you provide about your card. Be on alert. That will help you detect fraud early.
- Some card companies offer rewards. For example, you can use gift cards to buy stocks. That is one of the primary reasons most people prefer to use their credit cards to pay.
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Other Options When Buying Stocks With Your Credit Card
Despite the risks involved in using your credit card to buy stocks, there are still ways to go around it. Instead of using a loan or cash advance, you can consider other alternatives such as;
- Using credit card rewards: Many credit companies offer cash back rewards. You can redeem such cash rewards and move them to your brokerage account. You can go ahead to purchase stocks and keep your card out of harm’s way.
- Brokerage margin loans: You may be able to borrow money to buy additional stocks for your current investment. Using margin loans results in lower interest rates than using credit cards. Note that whether or not the investment is profile, you will have to repay the loan whenever it is due.
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Conclusion
Buying stocks with a credit card is not so tricky but could be risky. It is important to consider how you can use it and the effects it may lead to before making the purchase. It is advisable to use other credit alternatives if you do not have enough funds than using your credit card for the purchase.
