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.
Key Points
- Being turned down for a credit or loan product does not have a negative effect on your credit scores.
- What may affect your credit scores, however, is a hard inquiry that creditors conduct when you apply for a loan.
- When lenders pull your credit report, your credit scores could dip temporarily, though it should go back to where it was as long as you maintain financial responsibility.
Does Getting Rejected Affect Your Credit Scores?
Being denied for credit or a loan will not hurt your credit scores. In fact, while your credit report shows that you’ve applied, 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: How Can It Affect Your Credit Score?
A hard inquiry happens when a lender requests your credit report as part of the loan application process to determine your creditworthiness. So, if your lender conducts a hard inquiry, it may negatively affect your credit scores.
| What’s A Soft Inquiry? A hard inquiry should be distinguished from a ‘soft inquiry’, which does not affect your credit score. A soft inquiry is one that you make when you request a copy of your credit report. |
How Do Hard Inquiries Impact Your Credit Scores?
Credit inquiries are a common factor used to calculate credit scores in Canada. Depending on the credit scoring model, a hard inquiry may negatively affect your credit scores. That said, multiple hard inquiries within a short period can have a more pronounced impact on your credit scores. Each new inquiry may knock your credit score down by a few points.
Moreover, 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 high-risk borrower.
However, do note that multiple hard inquiries for certain loans such as a mortgage will count as one hard inquiry.
Can Potential New Creditors Tell If An Application Was Denied?
New creditors will not be able to know if you were turned down for a credit or loan product in the past. They will only be able to see the hard inquiries on your report. These 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 for 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.
How Are Credit Reports Updated?
Lenders and other service providers report payments and other account information to one of both major credit bureaus. Based on the information reported, Equifax and TransUnion will update your credit reports. This includes both on-time and late/missed payments.
How Often Are Credit Reports Updated?
Credit reports are updated every month. Each time your credit reports are updated, your credit scores could increase or decrease, depending on the information reported over the month.
If you’ve made timely payments, your credit scores could increase. But if you’ve missed some bill due dates, your credit scores could dip.
What Information Is Found On A Credit Report?
Many items are listed on your credit report, and each will remain on your report for a specific time. Here are some things that you’ll find on your credit report:
Personal Information
This includes your name, address, Social Insurance Number (SIN), and date of birth.
Credit Account Information
This information includes things like:
- Account types of accounts
- The date accounts were opened
- Your credit limit/loan amount
- Account balances
- Payment history
Credit Inquiries
These are requests that lenders and creditors make to check your credit when you apply for a loan. Hard inquiries can remain on your credit report for up to 3 years.
Late Or Missed Payments
If you made bill payments after they were due, these late or missed payments will be noted on your report. This information can remain on your credit report for up to 6 years from the reporting date.
Collections
If you’ve defaulted on a loan, your lender may sell your debt to a collections agency. This information will be included in your credit report and could remain for 6 years from the date of the last payment made.
Bankruptcies
If you’ve filed for bankruptcy in the past, this will be noted on your credit report as an ‘R9’ rating and may stay on your report for anywhere from 7 to 10 years, depending on the type of bankruptcy.
What If There Is Information On My Credit Report That Should Not Be There?
If you notice inaccuracies on your credit report or see that certain pieces of information should not be there, reach out to the credit bureau to have it investigated and rectified right away. Mistakes on your credit report could unfairly pull your credit scores down. They can also be a potential sign of identity theft.
That’s why it’s highly recommended for consumers to review their credit reports at least once a year to ensure everything is accurate and up-to-date. It’s also an opportunity to nip any identity theft efforts in the bud before the problem escalates.
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 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 your lender tells you that you were rejected due to a low credit score or a high debt-to-credit ratio, 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.
The Bottom Line
Being denied for credit has absolutely no effect on your credit report. However, if you’re denied, there was probably a good reason for it. Take a closer look into your financial situation and debt load and start thinking about how to improve your credit so you can turn those denials into approvals.
