Applying for a credit card is the first thought that usually comes to mind whenever you need to make some purchases and would need more cash than you presently have. And that’s a fine decision. However, applying for a credit card is no guarantee that you will be issued the card. The credit card issuer can deny your application for reasons ranging from an unimpressive credit score to security concerns.
The internet abounds with articles and other pieces of content debating on whether having your credit card application denied really affects your credit score or not. While some hold that such denial affects your credit score, others opine that it really makes no difference.
But having critically studied the subject, we go with those who hold that denied credit applications can truly slap your credit score. However, most times when a denial will affect your credit score, it is not a long-term impact. But it can lead to some indirect negative effects.
An example is when you already have a pile of debt due on credit cards you have obtained previously, and you need to get another line of credit with the aim of using that to improve your overall situation. Having your application denied in such instance means nothing will change; your financial condition will worsen and your credit score will continue to plummet.
This is not to mean that your credit score cannot be badly affected by a credit card denial. This usually happens when you have applied for too many cards or have many applications denied. Now, you are probably convinced that being denied a credit card application can really affect your credit score. But you are most likely wondering why this is so. Read on to understand how everything works.
How a Credit Card Denial Can Affect Your Credit Score
Credit card inquiries are similar to other inquiries
Any time to try to get credit such as a car loan, or mortgage, or even a credit cards, the lender (or credit card issuer in the case of a credit card) looks into your credit reports to see how financially disciplined you are and how well you have handled your debts in the past. When the lender does this, the credit bureau notes an inquiry on your credit report. This inquiry will specify the reason why your credit report was looked into and will be visible to anyone who looks into your credit report subsequently.
So, any inquiry into your credit report following your application for a credit card can be seen by other creditors. However, other creditors don’t get to see the result of the inquiry (if your application was denied), so such a negative result won’t affect your credit score.
How inquiries affect your score
Your credit report reflects how much credit you have recently applied for, which accounts for 10 percent of your FICO score. The Fair Isaac Corporation, which developed the algorithm for calculating credit score, states that just one inquiry will have little to no impact on your credit score.
However, each time you apply for a credit card, that counts as a single inquiry—unlike what obtains with car loans and mortgages, which are counted as a single inquiry. For example, if you applied for five new credit cards, five new inquiries will show on your credit score, which will certainly affect that 10 percent of your credit score allocated to how much credit cards you have.
So, the extent to which your credit score will be affected by a credit card denial depends on the number of applications you have submitted in the past year as well as the other information in your credit files. The number of points by which your credit score will fall due of multiple inquiries made within a short period of time also depends on how much positive information you have in your credit reports to effectively neutralize the impact of the numerous applications.
So, if your credit reports indicate that you have been using your credit cards responsibly for a long time, then the impact of having a credit card application denied will be much less significant. Even if you have your credit score slapped after an application denial, this impact won’t last long because FICO scoring algorithm only takes into account inquiries from the previous 12 months. That means, one year later, your denied credit card application will no longer have an effect on your credit score.
Bottom line-: We can definitively say that having your credit card application denied just once will have little or no impact on your credit score. And even though multiple applications can affect your credit score, the effect is usually short-lived.