The Foreign Exchange Market (sometimes called Forex or FX) gives everyone – and we mean everyone – worldwide an opportunity to trade currencies. Representing one of the most liquid (and largest) pools of assets, the potential to build fantastic wealth in Forex investing – life changing amounts of money – is borderline absurd.
On top of that, the barrier of entry for getting started in Forex is significantly lower than almost any other investment vehicle out there (short of buying gold or silver, for example). You don’t need a pile of money to get started in Forex. You don’t need a lot of experience to successfully trade Forex currency pairs, either.
No, thanks to modern brokers, trading platforms, and the pure power of leverage even new investors in Forex can start making mountains of money. But do you need a picture-perfect credit score (or even halfway decent credit) to start investing in Forex?
Forex trading does not affect your credit score. Regulated forex brokers may check your credit score before allowing you to deposit but the majority of forex brokers will allow you to sign up, regardless of your credit score.
Does Forex Affect Your Credit Score?
For all the potential we highlighted above, it’s not hard to see why so many investors (especially new investors) get excited about trading Forex.
The idea of making life changing amounts of money forex trading around the world is almost intoxicating for some.
Before you can get started swapping currency pairs, though, you have to find the right broker.
Forex brokers and trading platforms open up the world of the Forex market to you. Not only do they act as your trading floor and market research platform, but they also give you all the tools necessary to actually fund and execute your trades.
The overwhelming majority of these Forex brokers (the legitimate operations, anyway) are also going to provide leverage to their investors.
Leverage works similar to the way that trading on margin does in the stock market. Your Forex broker basically lends you money to trade with, usually at some kind of multiple based off of a couple of factors – including the amount of money that you have deposited into your account already.
A lot of brokers offer between 1:10 and 1:50 or more leverage. This means that if you deposited $1000 you’d have $10,000 to trade Forex with (at a 1:10 multiple) – or you to have $50,000 to trade with (at a 1:50 multiple).
Does Forex affect your credit score, though?
It may when you sign up for a brokerage and want to take advantage of this leverage.
Brokers that provide margin/leverage to their clients are almost always going to want to be sure of who they are extending these offers to.
Does Forex affect your credit score in other ways, though?
You aren’t going to be punished if some of your Forex trades turn out to be duds just as you won’t get more extensive lines of credit if your trades are wildly successful.
Brokers just want to know what they’re doing when it comes to leverage.
Do Forex Brokers Check Your Credit Score?
Like we mentioned a moment ago, Forex brokers want to know who they are facilitating trades for – at least from a financial standpoint.
This is especially true when it comes time to unlock leverage to new traders (and veterans alike, for that matter).
Think about it like this:
If you were running a Forex broker and were going to let traders invest your own money (or money that you were responsible for) wouldn’t you want to know – at least as much as possible – that those investors were going to be good for that money?
Of course you would!
Luckily, though, the “hit” to your credit score isn’t going to be significant when you go through the credit check from a broker.
Yes, some brokers are going to want to conduct a “hard check”.
This gives them the most complete picture of your financial background and history. It’s also going to ding your credit score at least a couple of points (and maybe has many as 10 to 15).
Most of the time, though, these hard credit checks have a rebound shortly after and you get all of those missing points back. Sometimes you even get a little bit of a credit boost, especially if you’re given a little extra leverage because of a good credit score.
A lot of these brokers want to pull your credit report, or (at the very least) conduct a “soft credit” pull to have a general idea of what your credit looks like before your leverage is released.
This is not at all unusual.
Remember, these brokers want to be sure that you are good for all of your debts especially if a trade goes belly up. They need to know that you are going to be able to fund your trades and your losses, especially if you are playing around with leveraged trades.
If you want to be sure that you maximize the amount of leverage you’re given from your Forex broker you’ll want to be sure that your credit score is as squared away as possible.
Take the time to boost your score, making sure that your bills are always paid on time, your credit utilization number is low, and your account history is extended as much as possible.
The better your credit, the more leverage you’ll have access to – and that could mean everything when the next big Forex investing opportunity comes down the line.
Imagine the difference that having 1:50 leverage times 1:10 leverage on a $1000 deposit would be if you hit a huge Forex swing.
That’s life-changing money we are talking about.
Boost your credit score as much as possible and capitalize on your Forex opportunities, but don’t worry about sinking your score.
That’s just not going to happen.
In Conclusion – Does Forex Affect Your Credit Score?
In summary, forex doesn’t affect your credit score.
Forex brokers want to know who they are dealing with before they let them play with leverage. They will check your credit score, though not usually more than once. Sometimes it is just a soft pull and sometimes it is hard credit check which affects the score by several points.
The good news is that you can boost your credit score through good credit management and trading practices. The better your score, the more leverage you will be able to use. And we all know that Forex opportunities do not come around every day so you want to take advantage of them as much as possible!