Does Credit Denial Affect a Credit Score?

You are never guaranteed credit approval, even through pre-approved credit card applications may come in the mail. Such offers simply mean you matching pre-screening criteria, but you can still be turned down if the creditor discovers negative information while processing your request. Credit denial does not generate an entry on your credit reports, but your credit application does show up. Applications affect your score regardless of whether you are approved or denied.

Inquiries

Credit applications generate inquiries to the credit bureaus. Equifax, Experian and TransUnion all maintain records of your current and previous accounts, payment records, credit limits, credit-related court proceedings and other pertinent data. Lenders review this information when evaluating your application, and their request to see it is also added to your file. Such entries are called inquiries and are seen by future lenders for up to two years, although the entries do indication whether the application was ultimately approved or rejected. If you got the new account, that shows up as its own entry on your reports.

Effects

Inquiries are negative items in terms of your credit score, whether or not your application was successful, especially if your score is already borderline. A single credit application reduces your score by a maximum of five points, which may not hurt you if your credit is otherwise excellent, but this drop can put you in sub-prime territory if you were already close. Additional applications bring your score down even more, particularly if you exceed six applications within a short time. This activity warns lenders that you are statistically eight times more likely to file bankruptcy, whether or not the applications were successful.

Considerations

Several credit applications generated within a two-week period while rate shopping do not count as multiple inquiries, according to MyFICO. For example, you might apply with several banks and finance companies while searching for the best car loan interest rate or might work with several firms while comparing mortgage terms. All related activity counts as a single inquiry when your score is determined. This policy is the same whether one of your applications is eventually approved or when all of the lenders deny your loan.

Soft Inquiries

Not all requests to see your credit reports result in a viewable entry. You may wish to get copies for yourself prior to applying for a loan or credit card to see if your records list anything that would cause a likely denial. You can buy your reports or get free copies once each 12 months from AnnualCreditReport.com, as allowed by federal law. This request is a "soft inquiry," meaning that lenders do not see it and it causes no credit score effect. The same is true of inquiries from companies seeking to send you promotional offers who view your information for pre-screening purposes.