If you apply for a credit card and get turned down, the good news is that the denial itself won't show up on your credit report or hurt your credit score. The bad news is that applying for the card in the first place can actually lower your credit score, though probably not by much. It depends on what else is in your credit history.
Significance
Credit reporting bureaus use complicated formulas that examine your credit history and assign you a number known as a FICO score, named after the Fair Isaac Corp., which developed the system. These scores range from 300 to 850; the higher your score, the more likely you are to be approved for new credit accounts, higher credit limits and lower interest rates. The Consumer Federation of America and Fair Isaac say most people score in the 600s and 700s.
Elements
The FICO score formula takes into account five categories of credit activity and gives different weight to each. According to Fair Isaac, your payment history is the biggest single factor, accounting for about 35 percent of your score. Your recent credit balances, including the portion of your available credit that you're using, make up about 30 percent. The length of your credit history is about 15 percent. The types of credit you use--say, car loans, mortgages and credit cards--account for about 10 percent. The final category is "new credit," which is about 10 percent of your score, and this is the category effected by credit card applications.
Applications
Every time you or anyone else looks at your credit report, it goes on your report as an "inquiry." An application for a credit card--regardless of whether it's approved or denied--triggers an inquiry. If you have a lot of application-related inquiries in a relatively short period of time, that can be a sign that you're in a financial hole, and your credit score may suffer for it. Fair Isaac says that for the average person, each new credit card application can shave about 5 points off a credit score; it may be more or less depending on other information in your history. Inquiries not related to credit applications--such as from an employer for a background check or a company hoping to sell you something--are not considered in the FICO score.
Denials
If your credit card application is approved, the new account shows up on your credit history and will be factored into the other categories that make up your score. If your application is denied, nothing further shows up on your history. The only sign of it is the inquiry.
Time Frame
The time frame that credit bureaus use when determining whether you have an excessive amount of inquiries depends, like so much else, on your overall history. But according to Bankrate.com, inquiries stay on your credit report for a maximum of two years, and only those in the past year can be factored into your credit score.
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