Although your credit report indicates that a credit application was made, it does not indicate if the application was accepted or denied for a loan or credit card. So, being denied for credit won’t show up on your credit report.
Usually, a lender will review one or more of your credit reports and credit scores when you apply for a loan. When a lender accesses your credit report, a so-called hard inquiry is added to your reports.
If your loan application is turned down, the lender’s decision won’t show up on your credit reports, but the inquiry will still be made. So, a declined loan will not appear on your credit report and wont directly impact your scores.
Yo, what’s up, credit fam? Ever been in that awkward situation where you get denied for a loan? It’s a bummer, for sure, but the good news is that a loan rejection won’t directly tank your credit score. Phew!
Here’s the lowdown on how loan rejections and credit scores work:
Denied? It’s a Secret!
When you get denied for a loan, your credit report won’t show whether your application was approved or rejected. This is because even if you’re approved, it doesn’t automatically mean you’ll open a new account. You might get approved for multiple auto loans but only take the one with the best deal, or you might change your mind after reviewing the loan offer. ♂️
Hard Inquiries Leave a Mark (But Fade)
While the loan rejection itself won’t show up on your credit report, the hard inquiry from applying for the loan will. This inquiry stays on your report for two years, but its impact on your FICO® Score only lasts for one year. ⏳ The good news is that the negative impact is usually pretty small, knocking off less than five points.
Multiple Inquiries? Not a Big Deal (Usually)
If you’re shopping around for a loan, don’t sweat the multiple inquiries. FICO and VantageScore treat these situations differently:
- FICO: If you’re rate shopping for an auto loan, student loan, or mortgage loan, FICO will usually combine all inquiries within a 14-day period (45 days for older FICO® Score versions) into one inquiry for scoring purposes. ️ They also won’t consider hard inquiries from these types of loan applications that occurred within the past 30 days. ⏳
- VantageScore: VantageScore uses a 14-day shopping window and slightly different rules. It combines hard inquiries on a wider range of account types, including credit cards and personal loans, but doesn’t have the 30-day buffer period. ️
Soft Inquiries: No Harm, No Foul
Sometimes, a credit check might lead to a soft inquiry instead of a hard inquiry These never impact your credit scores and can happen when someone checks your credit for a reason other than approving or denying a credit application, like when you check your own reports or apply for a prequalification or preapproval ️♀️
Bounced Back? Here’s What to Do:
Getting rejected for a loan isn’t the end of the world. Here are some steps you can take to bounce back:
- Get the 411: When you’re denied credit, the lender is legally obligated to send you an “adverse action letter” explaining why. This letter will also tell you how to get a free copy of the credit report they used to make their decision. ️♀️
- Address the Issues: Take action based on what you find in your adverse action notice. If your credit card balances are too high, pay them down. If your income is too low, consider other income sources you can include or ask a loved one to cosign your application.
- Check Your Credit Report: Make sure your credit report is accurate. If you find any mistakes, dispute them with the credit bureaus.
- Shop Around: If your credit is in good shape, you might still have a chance to get approved with favorable terms from another lender. Take some time to research alternatives and look for opportunities to get prequalified with a soft inquiry before submitting an official application. ️♀️
- Wait and Improve: If your credit isn’t so hot, it might be best to wait until you’ve had time to improve it before applying again. ⏳ While some creditors offer loans for people with bad or fair credit, the loans tend to have high interest rates and fees.
Keep an Eye on Your Credit:
Monitoring your credit is crucial for keeping your credit score healthy. With Experian’s complimentary credit monitoring service, you can view your Experian credit report and FICO® Score and receive real-time notifications when your report is updated. With this information, you can monitor your development and identify possible issues before they negatively impact your credit score. .
Boost Your Score for Free:
Want to give your FICO® Score a quick boost? Experian Boost® lets you get credit for the bills you already pay, like utilities, mobile phone, video streaming services, and now even rent! It’s free and takes just a few minutes to set up.
Remember, fam, getting denied for a loan doesn’t mean your credit is doomed. ♀️ By understanding how loan rejections and credit scores work, you can take steps to improve your credit and increase your chances of getting approved for future loans.
Do FICO and VantageScore Consider Hard Inquiries Differently?
Credit inquiries are among the least important factors in the credit scoring systems used by both VantageScore and FICO. In the FICO%C2%AE%20Score%E2%98%89%20model, for instance, inquiries are counted as just one component of a category, worth no more than 2010% of your score. In VantageScores credit scoring models, they make up a similarly small portion of your score.
How Does a Hard Inquiry Affect Your Credit?
Two essential pieces of information are included in a hard inquiry: the date of the inquiry and the name of the company making the inquiry.
Hard inquiries are taken into account in the scoring models used by VantageScore® and FICO, which could lower your scores. If your credit scores are affected, the impact of an individual inquiry is typically minimal.
However, unless you are looking for a specific kind of credit, like an auto loan, it’s a good idea to avoid making several inquiries in a short period of time. (More on that below. Additionally, to make sure you’re applying for cards you’re likely to be approved for, you can use a service like Experians CreditMatchTM.
Shopping for loans for major purchases can be OK, though. If several hard inquiries are made from the same kinds of installment lenders within a brief period of time, the impact is reduced. If these inquiries happen within a short period of time, usually two weeks, they are usually counted as one inquiry in most credit score computations.
I Got Denied Credit with a 774 Credit Score! (What I Learned)
FAQ
Does rejection affect credit score?
What happens if a loan gets rejected?
How much does your credit score go down if you get rejected?
Does it hurt your credit score if you get denied?
Does getting rejected affect your credit score?
Well, not directly. Getting rejected for a loan does not necessarily impact your credit score. But the actions that you take after your application gets rejected can definitely impact your credit score. For instance, you may get anxious after your application rejection and start applying for loans that you aren’t even eligible for.
What happens if a loan application gets rejected?
But the actions that you take after your application gets rejected can definitely impact your credit score. For instance, you may get anxious after your application rejection and start applying for loans that you aren’t even eligible for. As mentioned, loan applications create hard inquiries on your credit report.
Does getting denied credit affect your credit score?
Getting denied credit itself doesn’t affect your credit score, but the hard inquiry from applying for credit could impact it slightly. Does Denied Credit Show Up on Your Credit Report? How Does a Hard Inquiry Affect Your Credit Score?
What happens if you get declined for a loan?
Stay up-to-date with your latest credit information — and get your FICO ® Score for free. Being declined for a loan won’t hurt your credit, but your loan application can lead to a hard inquiry appearing on your credit report.