There may come a point when you decide to take out a personal loan. Maybe you have a home you desperately need to furnish. Or maybe you're looking to renovate an outdated kitchen to make it more functional.
The higher your credit score is at the time of your loan application, the more likely you are to get approved. But rest assured that if you aren't approved for a loan, your credit score shouldn't take an extra hit.
A rejection won't worsen your credit score
Any time you apply for a loan or credit card, a hard inquiry is done on your credit report. And that will usually result in a modest drop in your score -- somewhere in the ballpark of five points or so.
A hit that small generally won't have much of an impact. If your credit score is a 640, which Experian says is in the fair range, a five-point drop that brings your score down to 635 may not have much of an effect on your ability to borrow. A lender may decide to deny you whether your score is a 640 versus 635.
Similarly, if your credit score is an 815, which is considered exceptional, having it fall to an 810 shouldn't really hurt your chances of getting the loan or credit card you want. That's still a really excellent credit score, and a lender is apt to note that when reviewing your application.
You may also find it comforting to know that being denied a loan won't hurt your credit for the worse. A loan denial won't show up on your credit report, says Experian. However, the hard inquiry on your credit as a result of your application will. And your credit score might take a small hit because that's what happens any time you apply for credit.
But all told, your credit score will generally sustain the same amount of very limited damage whether you put in a loan application that's approved or denied.
It's best to apply for a loan you're likely to qualify for
A loan application denial generally won't hurt your credit score any more than an approved application. But since there's a small credit score drop associated with a hard inquiry, it's best to only have one of those inquiries on your record if your chances of getting approved are reasonably strong to begin with.
Some lenders publish credit score requirements on their websites so you can check out what's needed to qualify for a loan. And if that information isn't available in print, you could always call the lender to find out whether your score is likely to suffice.
You may also want to consider holding off on applying for a loan if you know your credit score isn't so great. Even if you get approved to borrow money in that situation, you might get stuck with a really unfavorable interest rate on your loan. But if you're able to boost your credit score and then apply for a loan, you may not only get approved, but snag an interest rate that has you paying less.
There are different steps you can take to boost your credit score, such as paying your bills on time and correcting errors on your credit report. Paying down credit card debt could also help your score improve. However, if you're looking to get a loan, it could indicate that you're not in a position where you're able to pay off a chunk of existing debt.
Either way, know that being denied a loan shouldn't hurt you too badly from a credit score perspective. A rejected application may come as a blow, and you might need to put certain plans on hold. But you can rest assured that there shouldn't be a black mark on your credit report, and you shouldn't anticipate a massive plunge in your credit score because a lender said no to your request.
FAQs
The Bottom Line
What happens to your credit score if you are denied a loan? ›
No, denied credit applications won't appear on your credit report. Lenders don't report whether your applications were approved or denied because even approved applications don't necessarily result in a new account.
Does your credit score get affected if you get rejected? ›
A hard inquiry from a card application can cause a small, temporary drop in credit scores. A denial or approval won't hurt your credit scores, because decisions aren't reflected in credit reports. When making lending decisions, card issuers use credit reports and credit scores to determine creditworthiness.
What happens if you get denied a loan? ›
If you're denied for a personal loan, you can reapply—and potentially be approved. However, before you reapply, make sure you've learned why your application was rejected in the first place so that you can improve your situation and increase your chances of approval. Federal Trade Commission.
Does my credit score go down if I get denied for a credit card? ›
Being denied for a credit card doesn't hurt your credit score. But the hard inquiry from submitting an application can cause your score to decrease.
Can you have a 700 credit score and still get denied? ›
According to the FICO® scale, a good credit score falls between 670 and 739. However, having a score in that range or above doesn't guarantee approval on credit applications.
How long should you wait to apply for a loan after being denied? ›
By waiting at least 30 days to reapply for a personal loan, you give yourself adequate time to improve your financial standing and boost whatever factors caused your denial in the first place.
Can you have a high credit score and still get denied? ›
In some cases, credit card issuers may choose to reject your application even if you have a good or excellent credit score. Getting denied for a credit card even though you have good credit might surprise you — but it happens more often than you think.
How do I build credit if I keep getting denied? ›
How To Build a Credit History
- Apply for a Secured Credit Card.
- Become an Authorized User.
- Find a Co-Signer.
- Use Store Credit Cards.
- Finance With Interest-Free Offers.
- Apply for a Credit-Builder Loan.
- Get Credit for Your Monthly Bills.
Well, there are several credit score ranges. For instance, 780–850 may be considered "excellent" while 720–780 may be seen as "good." But when it comes to a range that may be seen as bad, a score between 300 (the lowest) and 660 fits into the “poor” category.
In general, lenders extend $30,000 loans to borrowers with good to excellent credit, which is typically 670 and higher. But there may be lenders who lend to borrowers with bad credit. If you're having difficulty qualifying, you may consider getting a cosigner or co-borrower to help you get approved for the loan.
What would the impact be if your loan is not approved? ›
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 is one mistake that could reduce your credit score? ›
Making late payments
The late payment remains even if you pay the past-due balance. Your payment history may be a primary factor in determining your credit scores, depending on the credit scoring model (the way scores are calculated) used. Late payments can negatively impact credit scores.
How much does a declined loan affect credit score? ›
Getting denied for a loan or credit card will not be recorded on your credit report, and it will not directly impact your credit scores. To improve the chances that you'll be approved for credit, you may want to take a look at your credit before you apply, and take steps to improve it if you need to.
What will the credit company do if you are denied? ›
Under the Equal Credit Opportunity Act, creditors have 60 days to provide you with a specific reason as to why you were denied a line of credit. This is known as an adverse action letter. You may be rejected for a variety of factors, such as having a low income, a short credit history or too much credit card debt.
What is the 5 24 rule for Chase? ›
The 5/24 rule is an unofficial policy that dictates that Chase won't approve you for its cards if you've opened five or more personal credit card accounts from any issuer in the last 24 months. Put simply, the number of cards you've opened in the previous two years will affect your approval odds with Chase.
How badly does a loan affect your credit score? ›
Lenders will run a hard credit pull whenever you apply for a loan. This will temporarily drop your score by as much as 10 points. However, your score should go up again in the following months after you start making payments.
Does cancelling a loan affect your credit score? ›
You can also opt to cancel the loan at the disbursal stage. By this time a formal enquiry into your credit report has already been made by the lender. So, there will be no further impact on your credit score.
How long to wait after being declined for a loan? ›
Generally speaking, it's best to leave at least three months between loan applications – six months would be even better if you can manage it. It can be tempting to apply for a loan straight away using a different lender, however, this could make the situation worse.
Does getting denied credit increase hurt score? ›
Does Asking for a Credit Limit Increase Affect Your Credit Score? That can depend on your credit card issuer. If it does what's known as a soft credit check, it will not affect your credit score in any way. If the company makes a hard credit check, that may lower your score a bit, but usually only temporarily.
