Nobody likes getting turned down, whether it’s for a date, job application or a loan. However, when it comes to loan applications, the good news is that the lender’s decision on your application by itself won’t affect your credit score. In fact, your credit report won’t show the outcome of the application so future lenders won’t be able to tell if you were turned down or simply didn’t take the loan.
Inquiries Still Count
Any time you apply for a loan and the lender pulls your credit score, it appears on your credit report as a hard inquiry, regardless of the outcome. For example, say you submit an application for a credit card and the issuer pulls your credit score. The inquiry attaches to your credit report at that point, so it doesn’t matter if you get approved, denied or withdraw your application later. So, while getting turned down doesn’t have any impact on your credit report, your original loan application does.
Inquiries count for approximately a tenth of your credit score in certain scoring models and remain on your credit report for two years. They generally have a small negative impact on your credit score. However, there isn’t a magic number for how much each inquiry can impact your credit score because, according to Experian, everyone’s credit history is different. In addition, as an inquiry gets older, it has a smaller impact on your credit score.
Monitoring Credit Inquiries
Regularly checking your credit report allows you to monitor who checks your credit. When you check your own credit, the report shows everyone who has pulled your report for a credit application within the last two years. In addition, you can see the information in your credit report that is used to figure your credit score. Understanding how your score is calculated can help you make wise financial decisions in the future so you can limit the chances of a loan application being denied.
Remember, getting declined for a loan doesn’t have to be the end of your financial well-being. This brief overview of the impact that a loan denial can have on credit scores can help shed some light on a factor you likely haven’t encountered before, but it can go differently for each person depending on their circumstances. Do make sure that you’re doing your homework to stay connected with your financial landscape—keep surprises at bay by checking your information regularly, especially before you next apply for a loan.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc., an Experian company. © 2014 ConsumerInfo.com, Inc. All rights reserved.