When you apply for a credit card, loan, or other credit-based service, the business checks your credit report to decide whether you qualify. Ideally, you want to be approved, but being denied is also a possibility.

If you’ve recently had an application denied, or you fear a future application is at risk of being denied, you might be worried about what being denied means for your credit score.

How Being Denied Affects Your Credit

Having an application denied can affect your credit score, but not because of the denial itself. Other factors related to your application could impact your credit.

Consider what happens when you make a credit card or loan application. The lender pulls a copy of your credit report or score or both and reviews them to make a decision. Then, they either approve you or deny you. You may find out on the spot, or the bank may notify you by mail.

If you’re approved, the bank opens up the account and then begins reporting your account history – payment, credit limit or loan amount, and other account details – to the credit bureaus each month. There’s no additional entry added to your credit report when you’re application is denied.

Inquiries Related to Denied Accounts

When a business checks your credit report, a record is added to the “Inquiries” section of your credit report. Your credit report lists the name of the business that requested your credit report and the date of the inquiry. That’s it. The inquiry doesn’t give any information about the credit decision. The only way someone could know whether you were approved is to look for an account opened around the time the inquiry was made. If there’s no new account, one could only assume it’s because you weren’t approved.

That’s the good news – your credit score isn’t affected when you’re turned down (but your credit score could be the reason you were turned down). However, your application for credit can affect your credit score since inquiries are 10% of your score. One application may not affect your credit score significantly. But several credit card applications within a short period of time can cost some credit score points.

Only inquiries made to your credit report within the past 12 months affect your credit score.

What to Do About Being Turned Down

If you were denied because of information on your credit report, the creditor will send a letter with the reasons you were denied. You’ll also have an opportunity to request a free copy of any credit report was used in the decision.

When your credit score is the reason you were turned down, you’ll automatically receive a copy of your score along with the major factors affecting it. This information will be useful in helping you improve your credit. A better credit score will improve your chances at having your next application approved.

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