When you need a credit product like a credit card, personal loan or mortgage, you’ll need to fill out an application. Depending on your finances and credit profile, the lender or creditor will either approve or reject you. Unfortunately, when you’re faced with a rejection, you may wonder if a denial will affect your credit scores.
Does Being Denied Credit Affect Your Credit Scores?
The simple answer is no, being denied for credit or a loan will not hurt your credit scores. In fact, although your credit report shows that you made an application, it doesn’t show whether your application was approved or denied. Anyone making an inquiry has no way of retrieving that information. However, if a hard inquiry was made when you applied for credit, your credit may be affected negatively regardless if you were approved or rejected.
What Is A Hard Inquiry?
When you apply for a credit product, your lender will typically perform a credit inquiry. The company may conduct a hard inquiry to determine your creditworthiness and your likelihood to make your monthly payments. Depending on whether they perform a hard or soft inquiry, it could impact your credit scores.
- Hard Inquires – Hard inquiries are inquiries made by companies when you apply for credit products like a credit card, car loan, mortgage or personal loan. These inquiries can negatively impact your credit scores.
- Soft Inquires – Soft inquiries are the inquiries that you make when you request a copy of your own credit report. Soft inquiries have absolutely no impact on your credit scores.
How Do Inquiries Impact My Credit Scores?
Your credit scores keeps track of the number of recent inquiries, and how close together they are. Each new inquiry may knock your credit scores down by a few points. This is because it shows that you’re applying to take on new debt. However, the impact is generally very small and disappears over the course of a few months.
Multiple Hard Inquiries
However, having a lot of inquiries within a short period of time could have a larger impact. If you’re applying to take on new debt in a lot of places at the same time, it could make you look like a credit risk. For that reason, it’s best to space out your credit applications by at least two months.
There are exceptions to this, particularly for mortgages and car loans. Multiple credit inquiries within a short period of time for these loans are considered as a single inquiry.
Overall, don’t worry too much about the inquiries though. As long as you space them out, they will have a minimal impact, and they do disappear over time.
Can Potential New Creditors Tell If An Application Was Denied?
If you are denied credit, other potential creditors who check your credit will have no way of finding out. They will only be able to see the hard inquiries on your report which would show that you applied for credit, and when you applied for it. The inquiry may also include the name of the company that you applied credit with. It does not include information about whether they approved the application.
Even when no new account shows up on your credit report, it won’t indicate to them that you weren’t approved. You could just as easily have chosen not to open an account, or the lender might not report to the credit reporting agencies.
Additional Reading
What Can You Do If You’re Rejected?
If you’ve been rejected for a loan, there are a few things you can do before applying for another.
- Find Out Why You Were Rejected – Understanding why you got rejected is one of the most important things you can do, as it can help you get approved for the next time you apply for a loan.
- Work On Improving The Things You Were Rejected For – Once you know the reason for your rejection, you can work on improving it. For example, if you lender tells you you were rejected due to a low credit score or a high debt-to-credit ratio, then you can use that information to improve those aspects of your finances.
- Re-Apply For Credit – Once you’ve improved your credit and finances, you can re-apply for your loan knowing that your chances of approval are much higher.
FAQs On Being Rejected For Credit
Can I find out If I approve for credit without hurting my credit?
If being approved affects your credit score why doesn’t being denied?
What was aI rejected for a loan?
The Bottom Line
Being denied for credit has absolutely no effect on your credit report. However, if you’re denied, you should keep in mind that there was probably a reason why you didn’t get approved. You should take a deeper look into your financial situation and debt load and start thinking about what you can do to improve your credit score so you can turn those denials into approvals.
