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.
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.
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.
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.
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.
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.
If you’ve been rejected for a loan, there are a few things you can do before applying for another.
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.
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Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.
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