Does Being Denied Credit Hurt Your Credit Score?

By Randall Orser | Personal Finances

When you are waiting for credit approval and worrying if it will be successful or denied you might wonder if a denial will affect your credit score. The answer is no, being denied for credit does not hurt your credit score.  Though your score will show that you applied for credit it does not show if you were successful and anyone making a credit inquiry about you will be unable to get that information.

However, inquiries made when you apply for credit will impact your credit score.  There are two types of inquiries.  Hard Inquiries are made by made by companies when you apply for credit or a loan. Soft Inquiries are those made by your when you request a copy of your credit report and have not bearing on your credit score.  When you apply for credit the lender will check your credit score and your ability to make your monthly payments.  This inquiry happens whether or not you are approved or denied and only contains the name of the company and the date of the inquiry.  It does not contain information regarding your approval or denial.

Your credit score keeps track of the number of recent inquiries and how close together they are. Each new inquiry especially in a short period of time will reduce your score by a few points showing that you are applying to take on new debt.  This impact on your credit score is small and will disappear after a few months.  If you have a lot of inquiries within a short period of time this could have a greater impact on your credit rating.  Applying for a lot of new debt at a number of different places can make you look like a credit risk, so it is best to space out your applications by at least a couple of months to minimize the impact.  Your credit score will not be irreparably damaged but you should wait a few months before applying again.

Potential creditors will not learn if you were denied for credit only that you applied for credit and when. Even though no new account will show up on your credit rating it does not show that you were were not approved, you could just have chosen not to open up a new account or the lender may not have reported to the credit agencies.  It is not that being approved that affects your score it is how well you manage this new debt and meet your monthly obligations.

Though being denied does not affect your credit score there is a reason why you were denied.  You should take a look into your financial situation and debt load to see if there is a way you could improve your credit score so that you will be approved in the future.  

From an article by Caitlin Wood

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President/CEO Number Crunchers® Accounting Inc. Learn how to just say stuff it to this bookkeeping thing with our 'Just Say: "Stuff It" To Bookkeeping program.