Does it Hurt My Credit Score if I’m Denied Credit?

Jul
21
2011

When you apply for a loan or credit card, the credit grantor reviews your credit report and score usually through an automated underwriting system. A credit inquiry is placed on your credit report, which indicates that a company has reviewed your file.  The credit inquiry includes the company name and date of the inquiry.  The inquiry does not indicate whether your application was approved or whether you were denied credit.

Do you have a credit inquiry on your credit report? Visit here to see your credit report and credit score online now

One thought would be to attempt to match a newly opened account with a recent credit inquiry as a rudimentary method of determining whether or not the inquiry lead to you being approved or denied credit.  However, it’s unlikely lenders would try to match the credit inquiry with an account.  The fact that an account wasn’t opened doesn’t necessarily indicate that you were denied credit; you may have decided not to accept the credit card or loan.  And, the lender may choose not to report their accounts to the credit bureaus.

Inquiries for credit in the past 12 months can impact your score.  To handle shopping for a mortgage, auto loan or student loan, inquiries of these types within the last 30 days are not counted.  Prior to that, mortgage and auto inquiries within each 45 day period are combined as one credit inquiry.  It is best to do your credit shopping within 30 days.  Applications for other loans or credit cards do not enjoy the same treatment.

That fact that you were denied credit does not hurt your score, but the credit inquiry could have an impact depending upon its type. Too many inquiries in a short period of time will have more of an impact than isolated inquiries. By law, you are to receive a written explanation of why you were declined credit and where to get a copy of the information that was used.  If it was a credit reporting agency, you would be given the name, address and phone number.  And, after July 21, 2011 the denial must be accompanied by the same credit score used by the lender to make their decision.

Do you have a credit inquiry on your credit report? Visit here to see your credit report and credit score online now

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Comments

  • Rebecca Ireland
    July 22, 2011

    Lenders always say your credit score does not play a part in their determination to give or deny you credit, I’m so glad they now have to provide that to consumers because I think it plays a bigger part than they admit. My question is where can you obtain the most accurate credit score that lenders will see too from the online credit reporting agencies? Every online service gives different score than the ones viewed by lenders and sometimes they’re way off the mark.

    Who has the best, most accurate scoring information that lenders use most frequently?

  • July 25, 2011

    myFICO.com is going to be your best bet. It may not be the exact same FICO score your lender is using but it is a FICO score nonetheless.

  • Scott Marchesi
    August 7, 2011

    Great article, gave me a little piece of mind after being declined for a loan. I was hoping you could provide me with some advice. I am looking to get engaged and I need to finance the ring I want to buy. I was willing to put about 15% down and finance the rest. My credit rating is good/excellent. I have over 8 years of credit and I am only 27. I have never missed or been late on any payments. Furthermore I typically pay more than the minimum balance. I thought I was in the clear to be approved. After being declined the only thing I could think of was a credit card I have that is near its limit. Its an old credit card that I opened to get me through college and recently had some emergency purchases that pushed its limits. I know the credit to debt ratio is a huge factor in being approved for a loan. The day I was declined I tapped into my savings and paid off more than half of the credit card.

    My question is how quickly can I reapply and how quickly do credit bureaus realize that my credit to debt ratio has improved. Furthermore should I even reapply so quickly, also i didnt have a co-signer would it be a good idea to have someone co-sign? Any advice and info would be greatly appreciated.

  • Bob Brooks
    January 27, 2012

    I was declined for an auto loan because I, currently, do not live in the area served by the bank. I will be moving there.

    Your article states that the credit agencies are not informed of a declined loan application. It also states I am eligible to get a free credit report and score. I am interested in knowing my score.

    If I contact the credit agency about this, they will then find out I have been declined. Will that information go in my file and lower my score?

    Thank you.

  • January 30, 2012

    Hi Bob. No, even if you contact the credit bureaus and leverage your rights to a free credit report b/c of the denial it will not become a part of your credit report. Adverse lender decisions do not go on credit reports. By the way, if your bank declined your application b/c of your credit score they’re required under Dodd-Frank to provide you with the score they used to base their decision. It sounds like a non-score based decision though.

  • Joe Dun
    April 2, 2013

    If you are getting denied on the basis of no credit history, will it hurt your (nonexistent) credit history?

  • April 3, 2013

    Hi Joe, thanks for your comment. If you’re applying for and being denied credit over and over that fact isn’t hurting your credit. There’s nothing on your credit reports that reads, “Joe was denied by XYZ Bank on ABC date.”

  • Joe Dun
    April 3, 2013

    Thank you for your reply and great article!

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