Does Applying for a Loan and Not Getting It Affect Credit Score?

Your credit score plays an important role in whether or not you get a loan. You actually have scores from three major credit bureaus -- Experian, Equifax and TransUnion. They consider similar factors in calculating your scores, including recent credit inquiries. If lenders have denied your loan applications, these recent inquiries count against your scores. Improve your chances for getting a loan next time by first improving the other factors against you.

Impact of Loan Applications

Each application for credit causes a small negative impact on your score. According to Experian, the agency reports only credit card and loan applications to prospective creditors. Your employer's inquiry or your own does not impact your score in any way. In addition, the bureaus now minimize the effect of rate shopping in calculating their scores. As for loan denials, no credit bureau lists denials among the negative influences on your report -- only inquiries. However, repeated applications have an additive effect in increasing the number of inquiries against you. Credit bureaus and banks consider people who repeatedly try to borrow money a greater credit risk than those who do not.

More Important Factors

Even though they count against you, loan applications are not usually a deciding factor. Normally other issues have more impact on your credit scores. For example, bankruptcies, large debts and late payments lower your scores. Using 35 percent or more of your available credit lowers your scores. According to Experian, having too much available credit or too many credit cards can also affect your score negatively. Only when your credit history is already shaky do loan applications have much impact.

Managing Your Reports

Find out what is wrong with your credit so you can begin improving it. First, check your credit reports from the three major bureaus and examine them for errors. If you find paid-off accounts showing delinquent, or other false or outdated information, contact the bureau with proof and ask to have the error removed. Each of the three major bureaus provides online information on correcting errors in your credit report.

Managing Your Credit

Liz Pulliam Weston of MSN Money says that continuing to use credit responsibly even while paying down debt will help your scores. Always pay on time. To avoid slip-ups, set up automatic transfers for as many bills as possible. Pay down your debt balances to keep your ratio of used-to-available credit below 35 percent, and lower is better. If your lender reduces the limit on a credit card, call and ask to have the old limit reinstated. Maintain a long and stable credit history by keeping older accounts open. Hold off on making loan applications until your scores improve.