Does Getting Rejected Affect Your Credit Score?

If you’re like most of us, you may have been rejected when applying for a car loan, home loan, or credit card. Also, you may be wondering whether getting rejected or denied credit affects your credit score? We will answer this question in much detail below.

Does Getting Rejected Affect Your Credit Score?

If you applied for a credit card, home loan, auto loan, or any type of credit and got rejected, the rejection will likely cause a small drop in your credit score. This is so because when you apply for credit and a lender reviews a copy of your credit report, a hard inquiry is placed on it. Each hard inquiry can lower your credit score by 5 to 10 points, depending on your credit. Also, keep in mind that a hard inquiry is added to your credit report regardless of whether you’re approved or rejected, so the point drop does not occur merely because of the rejection, but rather the hard inquiry that’s placed on your credit report because the lender reviewed it.

That said, a hard inquiry only lasts for two years on your credit report, and experts state that the effect a hard inquiry begins to lessen 12 months after you applied for credit.

If you applied for credit or a loan and more than 2 years have passed since a hard inquiry has been added to your credit report, you should either contact the creditor or lender that placed the hard inquiry on your credit report and ask them to remove it, or you can file a dispute through the credit reporting bureau displaying the hard inquiry to have it removed.

Also, if you got rejected, you should keep in mind that lenders and creditors are required by Federal Law to provide you with an explanation as to why you were denied or rejected credit. Lenders and creditors usually do this by sending you a letter explaining why you were denied, and they will provide you with more information on how to obtain a copy of the credit report they based their decision on.

So, if they used your TransUnion credit report, for example, they will provide you with instructions on how to obtain your TransUnion credit report.

How Does a Hard Inquiry Affect Your Credit Score

A single hard inquiry can lower your credit score by 5 to 10 points. You should not worry too much about your credit score dropping a few points as this is completely normal and the impact of a hard inquiry will lessen with time until it’s ultimately removed in two years from the date you applied for credit.

That said, you should not apply for too many credit cards and loans within a short period of time because each application will result in a hard inquiry and each hard inquiry will lower your credit score. So, too many applications within a short period of time can significantly lower your credit score.

Usually, creditors and lenders will check your credit report with one of the credit reporting bureaus, and the bureau they check with will add a hard inquiry to only the credit report they checked. For example, if you apply for a Bank of America Credit Card and they check your Experian Credit report, an inquiry will only be placed on your Experian credit report. The remaining two credit reporting bureaus (Transunion and Equifax) will not add a hard inquiry to your credit report.

That said, some lenders and creditors may check all of your credit reports, at which point a hard inquiry will be added to all of the credit reports that were checked.

So, now you know that whenever you apply for a credit card, student loan, auto loan, auto lease, home mortgage, or in some circumstances employment or renting an apartment, a hard inquiry will be placed on your credit report when a third party requests a copy of your credit report. A hard inquiry is added regardless of whether you’re approved or rejected to inform other parties that you’ve been shopping for credit.

In addition of a hard inquiry being added to your credit report, if other lenders or creditors check your credit report, too many hard inquiries will raise red flags. So, apply for as much credit as you need. Too avoid applying, being rejected, and having a hard inquiry added to your credit report, check the requirements for the lender or creditor before applying. This should significantly reduce the number of hard inquiries on your credit report.

What Should You Do If You’re Rejected for a Credit Card or Loan?

If you have been rejected for a credit card, loan, or any other credit item, you should not worry as there a ton of options for anyone looking for credit. One quick tip that will save you from racking up too many hard inquiries is to review the requirements for the credit card or loan that you’re applying for before submitting your application.

Many credit cards and lenders post what the minimum requirements are for the credit items they’re offering. In the event that the lender did not post the requirements, there are a ton of sites that have probably reviewed the credit item you want to apply for, so check them out and see if your credit score and income meet their requirements.

Common Reasons For Being Rejected

If you’ve been rejected for a credit card or loan, here are some of the most common reasons you may have been rejected:

  • Short or insufficient credit history – If you do not have sufficient accounts that are open and in good standing, you may be rejected by your lender for having too short or insufficient credit history. The only way to overcome this type of rejection is to have several accounts open and to make timely payments on such accounts. One great way to build credit history is to open a secured credit card if you don’t qualify for a regular unsecured credit card, to use such card responsibly, and make complete payments on your account.

  • Too many hard inquiries – The second most common reason why you may have been rejected is for having too many hard inquiries on your credit report. If you have applied for too many credit cards or loans within a short period of time, you may have racked up several hard inquiries. Some lenders and creditors will not open accounts for those with too many hard inquiries because they view the person as becoming too reliant on new credit, which often signals financial trouble. So, if you want to open a new account, you should avoid applying for too many credit items because each time you apply a hard inquiry is placed on your credit report.

  • High credit card balance – Some lenders may have rejected you for having too much debt. As a rule of thumb, you should always keep your credit utilization below 30%, ideally you want to remain between 5% and 10%, so if you’re using a lot of your available credit, this may be grounds for your denial of credit. The only way to address this type of denial is to pay down your credit cards so that you’re using less of your available credit.

  • Missed payments – If you miss any payments on your account and you’re more than 30 days late, your missed payments will be reported to the credit reporting bureaus, significantly lowering your credit score. Having missed or late payments may cause lenders to deny you credit because you have demonstrated that you cannot handle repaying your accounts on time. So, always make sure to make all of your payments in full and on time to avoid this type of rejection.

Credit Score Planet Frequently Asked Questions

1. Does your credit score go down when you get declined?

Whenever you apply for a credit card, your credit score may drop a few points regardless of whether you’re approved or denied for the credit card or loan that you applied for. This happens because a hard inquiry is placed on your credit report when a lenders reviews a copy of your credit report to make a decision as to whether to extend credit to you.

2. what happens if you get rejected for a credit card?

If you get rejected for a credit, your credit score may go down a few points because the card issuer probably checked your credit, adding a hard inquiry to your credit report. That said, this small drop would have occurred regardless of whether you were approved or rejected for the credit card that you applied for.

3. Will applying for credit hurt my credit?

Applying for a credit could cause a small but temporary drop in your credit score because a hard inquiry is placed on your credit report when your lender reviewed your credit report. That said, you should not worry too much about the small drop as your credit score will quickly recover.

4. How can I raise my credit score?

You can raise and improve your credit score by making all of your payments on time, lowering the balances on your accounts, keeping your old accounts open, diversifying the type of credit that you have, and periodically checking your credit report and disputing any inaccurate information that appears on your credit report.

5. Is it bad to apply for too many credit cards?

Yes, you should avoid applying for too many credit cards because each time you apply for a credit card, a hard inquiry is placed on your credit report. Even though a single hard inquiry will not cause significant damage to your credit score, too many hard inquiries within a short period of time can significantly hurt your credit score. Also, when future lenders see too many hard inquiries they may be reluctant to lend you money as the hard inquiries show them that you’re seeking too much new credit, which serves as a red flag for some lenders.