Does Being Denied For a Mortgage Loan Affect My Credit?

Credit rating agencies collect everything about your financial history, so it seems reasonable that a denial would be a piece of information they want to know about. Being denied for a mortgage probably won't hurt your credit rating that much, but a denial is a sign of poor credit. You can mitigate the damage to your score, when applying for a mortgage, by consolidating your inquiries into a short period of time.

Identification

A mortgage denial has no impact on your credit score. Rather, it is the application for credit that hurts your credit score, according to Bills.com. Every time you apply for credit, the FICO scoring formula takes three to five points off your rating. Expect damage closer to five points if you have a good credit score.

Considerations

Although five points on a 300 to 850 scale have little effect, hard inquiries -- where a lender runs a report because you asked for credit -- can add up to significant damage. If you have several hard inquiries on your record, usually more than five, the FICO score will reflect this because several applications in a short period of time are the sign of someone under financial duress, according to Bankrate.com.

Reducing the Impact of Hard Inquiries

The FICO score has an exception to the impact of inquiries if you shop around for rates. Put in all of your applications to lenders within a short period of time and it will look like you are trying to find the best rate -- the sign of a good borrower. The newest FICO score model, as of 2010, extends the rate shopping window to 45 days.

Tip

You usually need a score of at least 620 to get a mortgage from the Federal Housing Administration. If you are denied, you probably have some serious red flags on your score. A lender that denies you credit must furnish you a copy of the credit report it used to make the determination. Review the report and look for possible incorrect items, such as a collections account that does not belong to you. Also, reduce your debt obligation as much as possible applying again.