How Will a Denial Affect Your Credit Score

Even with a great credit score, you’re not guaranteed to have your credit card and loan applications approved. Lenders consider a few other factors outside your credit score like your income and employment history. If you’re not a good candidate in all areas, your application could be denied.

While being denied is disappointing, especially if you were hoping to be approved for a mortgage or car loan, the good news is that a denial won’t affect your credit score. It does, however, indicate that you’ll have to do some work to improve your chances of being approved next time.

Your credit report will show that you’ve applied for a credit-product, if the business did a credit check as part of your application process. That inquiry can affect your credit score since inquiries count 10% of your overall credit score. Fortunately, inquiries don’t typically have a significant impact on credit scores, especially if you have a long, rich credit history with lots of information. The status of your application – approved or denied doesn’t show on your credit report.

Being approved, on the other hand, can affect your credit score, depending on the type of product or service you’re approved for. If your application was for a credit card or loan, the bank will add a new tradeline to your credit report reflecting your new account. The tradeline will reflect your history for that account. That new tradeline lowers your credit age, a factor that’s 15% of your credit score. The older your credit history is the better, but new accounts can lower that average age and cause your credit score to drop. Fortunately, your score will rise again as the account gets older, provided you don’t open any additional new accounts.

Opening new accounts is sometimes necessary. Don’t avoid them because of the potential impact to your credit score.

Don’t run out and put in a slew of applications just because being denied won’t affect your credit score. Remember that each of your applications results in a credit inquiry and those do affect your score. Unless you’re rate shopping for a mortgage or auto loan, you should limit your credit applications. And even when you are applying for one of those types of loans, you should do your rate shopping within a short period of time to minimize the impact to your credit.

If you are denied, the creditor or lender will send you a letter telling you the reasons you were denied. You may have access to a free credit report or credit score if either or both were used in the decision to deny your credit application. Your credit score will be sent automatically if you’re eligible. However, you’ll have 60 days to order the copy of your credit score. The adverse action letter you received after being turned down will include instructions for ordering that credit report.