Does Getting Declined Hurt Your Credit Score?

A rejection for credit may intuitively feel like it should hurt your credit rating, but it has no effect on it. However, a rejection probably means your credit history is ailing and you should take immediate action to resolve the problem. In some cases, factors other than your credit rating affect your ability to gain credit.

Identification

A rejection for credit does not hurt your credit score any more than an approval. If a lender pulls your credit history because you requested credit, the resulting inquiry damages your credit rating anywhere from zero to 5 points. Individual inquiries have a barely visible impact on your credit rating, but six or more inquiries within a year mean you are eight times as likely to declare bankruptcy, according to the Fair Isaac Corporation.

Considerations

The status of a credit application has intangible effects on your creditworthiness and financial situation. People who face constant rejections are less likely to try to improve their credit history or fight unreasonable terms, such as excessive fees, than the typical consumer. It usually takes at least two years to rebuild a credit rating after a disaster such as foreclosure, so you must have patience when starting credit repair.

Potential

If you ignore the sign that you have bad credit, and put in more credit applications to lenders in desperate hopes of approval, you may end up causing significant damage. The FICO model counts multiple inquiries in connection to a few types of loans, such as mortgages and student loans, incurred during a 14- to 45-day period as a single inquiry. Most applications, such as those for credit cards and personal loans, always count against you.

Tip

If a lender rejects your credit application because of something in your credit history, request a free credit report from the credit reporting bureau that provided your credit history. You can also get a free report from each major bureau annually via the Annual Credit Report website. Review your credit history and look for items that may concern a lender, such as frequent missed payments or delinquent accounts. If you have several negative items, hold off on applying for credit until you build one or two years of good payment history. Also, ask the lender about its lending requirements. It may have rejected your application for noncredit related reasons, such as an insufficient income or spotty job history.