How A Denied Credit Card Application Affects A Credit Score

Applying for a rewards credit card is a thrilling experience for many of us.  We start thinking about all the points we can collect and the benefits those points can provide us.  Cashback rewards, rebates for purchases, discounts on flights to exotic destinations – there is much to look forward to when applying for a rewards credit card.

But in situations when applications are denied, it is with a heavy heart that we are forced to let those dreams go.  At the same time, many of us are paranoid about what a rejected credit card application could do to our credit scores.

After all, credit scores are incredibly important when we submit larger financial applications, such as car loans or even mortgages.  What happens to our chances of approval for these larger loans if we fail to acquire a credit card?  Thankfully, a rejected credit card application is not as damaging to our credit scores as we may believe.

Rejections Are Not Tracked

Any time we apply for credit, the financial institution we apply through reviews our debt history using credit scores from bureaus like Equifax or TransUnion.  When those inquiries are underway, the credit bureau makes a note, and adds those inquiries to our credit reports.

Other creditors also note that we are applying for more credit, and subsequently reconsider our credit scores.  However, these other lenders are unable to view any information beyond the amount of credit we apply for without our consent.  This means whether our applications are approved or denied, creditors are unable to see the results.

How Do Inquiries Affect Our Credit Scores

When creditors pull our credit histories, they can see the amount of credit we ask for within each application.  Each inquiry can affect up to 10 percent of our credit scores with the bureaus, but one inquiry is a rather small percentage in the grand scheme of things.

However, there is a notable exception with inquiries into credit card applications, and inquiries into mortgage or car loan applications.  The bureaus treat larger loan requests as one inquiry, whereas each credit card application is its own separate inquiry.

This means if we apply for only one credit card, the application has little to no affect on our credit scores.  But if we repeatedly apply for a card following each rejection, these subsequent inquiries into our credit requests will have direct consequences on our credit scores.

How Long Do These Inquiries Remain On Our Credit Reports

Credit score inquiries are required to remain on our credit reports for at least a year, and in some cases up to two years.  But new inquiries only review previous inquiries made within the preceding 12 months.

This means if we apply for credit cards today, and fail to acquire the cards, we can apply for new credit cards beginning in January 2015 – and those future inquiries will have no affect on our credit scores.

How Do We Learn From Rejections

If our credit card applications are ultimately rejected, the laws require creditors to inform us why we were rejected.  Part of that information requires creditors to inform us which bureau they used to review our credit scores.

With this information, we can initiate our own follow-ups into our credit reports.  We should verify that the information with Equifax matches the information with TransUnion.  If there are errors, we can correct that information and repair any mistaken damages to our credit scores.

What To Take Away From Rejections

If we were denied any credit cards, applying for more right away is not in our best interests.  There was obviously a reason why we were turned away, and submitting new applications will only do more harm to our credit scores.

In these situations, we should take time to review our financial situations, including our credit reports and whether we pay all our bills on time.  Once we know our own financial house is in order, and enough time has passed that a new credit card application will do no further harm to our credit scores, we can try once again to acquire more credit.