Does Getting Turned Down for a Mortgage Affect Your Credit Score?

A rejection for a mortgage technically lowers a credit score, but so does an approval. The fact that you need to add debt to your credit profile to get a loan and that the creditor inquired into your credit file is what does the damage. Unlike other types of loans, putting in more applications, possibly in anger, won't hurt your score if you do it soon enough.

Identification

Any time you apply for a mortgage, the lender usually does what is known as a hard inquiry into your credit file or a credit check for which you volunteered. Thus, getting turned down or approved lowers your credit score. However, the impact is no more than five points and some borrowers many see no difference in their scores, according to MyFICO.com.

Considerations

Perhaps the biggest effect of a mortgage rejection is the damage to your self-esteem. You could think that you have bad credit forever and not try to improve your credit profile and reapply later or think you are incapable of handling credit, suggests Fox Business. On the contrary, most people have excellent credit -- so it is attainable by most everyone -- and rebuilding a credit history to match other excellent borrowers might take as little as two to three years.

Applying at Other Lenders

In 2011, the FICO formula gives consumers a 45-day window to apply for as many mortgages as they want with all the inquiries counting as a single inquiry for credit scoring purposes, according to MyFICO. Thus, it cannot hurt you to apply at other places, but you may not receive a favorable interest rate if you have a poor credit history.

Tip

When you cannot get a mortgage and feel down because of your credit score, it might help to stop checking it for a few months to avoid seeing a low number while you rebuild your credit history. In the meantime, check your credit file with the national bureaus and look for weaknesses. Do not add new debt to your credit history and pay down as many outstanding loans as possible. You could go to a credit counselor to help set a monthly budget and deal with creditors to possibly get lower interest rates or monthly minimums so you can meet your debt obligations every month.