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Does Getting Denied Credit Hurt Your Credit Score?

Sayana Izmailova

Mar 10, 2021 6 min read

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Does Getting Denied Credit Hurt Your Credit Score?
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    Did you recently apply for a loan or a credit card and get denied? If so, one of the questions on your mind might be whether or not the rejection will affect your credit score. 

    The short answer is no — getting denied credit does not hurt your credit score. But your score may decrease a bit when you apply for credit, even when you're approved. That’s because most lenders review your credit report when you apply for a credit product. The hard inquiry that lenders make on your report will temporarily lower your credit score. 

    So what exactly happens when a hard inquiry is made on your credit report? When you apply for a loan, credit card, or other financial product, lenders will review your credit report before approving your application. This is known as a hard inquiry, and it is recorded on your credit file. When a hard inquiry is added to your credit file, it will impact your credit score. However, your credit score is only temporarily lowered by a few points from a hard inquiry, and you can usually bounce back from this dip quickly. 

    Hard credit inquiries are different from soft credit inquiries, which are simple surface level checks of your credit score. Soft credit inquiries don’t impact your credit score, and you can use tools like Borrowell to check your credit score for free as often as you’d like without hurting it. 

    On the other hand, hard inquiries do impact your credit score, and each hard inquiry temporarily lowers your credit score. The number of hard inquiries on your credit file impacts your overall credit score, so applying for many different types of credit products all at once can have longer lasting impacts to your credit score. Knowing how hard inquiries work will help you make informed decisions when applying for credit. 

    What Can You Do After Being Rejected Credit? 

    Since each hard inquiry lowers your credit score slightly, it is best to space them out as much as possible. For example, if you recently got denied credit, it may be a good idea to wait a few months before applying again. 

    So if you can’t apply again immediately, what should you do instead? What should you do after being denied a credit product? Here are some key steps you should take after being rejected credit:

    1. Find out why you got denied credit

    2. Improve your credit score and fix other rejection reasons

    3. Reapply with another credit provider

    4. Only apply with confidence by knowing your chances of approval

    Find Out Why You Got Denied 

    The first step you should take is understanding specifically why your credit application was rejected. Was it because of a low credit score, missed credit card payments, or insecure employment status? Knowing why you got rejected will help you be successful the next time you apply. You should try speaking directly with the lender or credit provider to understand what prevented your application from being successful.

    Improve your Credit Score and Fix Other Rejection Reasons

    Now that you know what the issues were, you can work on fixing them. There are specific steps you can take to improve your credit score, such as improving your bill payments, reducing your credit utilization, raising your credit limit, and disputing errors on your credit report. It takes time to raise your credit score, but it’s not worth applying again if you know your chances of being successful haven’t improved.

    Reapply with Another Credit Provider 

    If enough time has passed and you’ve fixed the issues that prevented your application from being successful, it may be time to apply once again. You may want to do due diligence and research to see what other lenders or credit products are available in the market. For example, if you’re looking for a rewards credit card, using a platform like Borrowell can help you quickly compare rewards credit cards available in Canada. 

    Only Apply with Confidence

    Remember that applying for credit will lower your credit score slightly, so it’s best to be fairly confident in your chances of approval. If you’re not sure, you can do a soft inquiry and check your credit score on your own. You can use Borrowell to check your credit score, and you can even see your approval chances for a wide range of credit cards, loans and other products based on your specific credit score. Knowing your credit score and your approval chances can help you apply with confidence.

    Does Credit Denial Show up On Your Credit Report? 

    No, credit denial will not appear on your credit report. Your credit report doesn’t explicitly show when you’ve been denied credit.  

    In fact, your report shows neither denials nor approvals. It only shows your credit application — i.e. the hard inquiry made by the potential credit issuer to help them come to a decision. 

    You may ask, “But if my credit report shows a hard inquiry, but no new account associated with this credit, isn’t it obvious that I was denied?”

    Not necessarily. You could apply for a loan, be approved, and then change your mind. Or maybe you got approved for a few loans around the same time, but only go forward with the one that offers the best rate. 

    In fact, most credit scoring systems will make note of multiple hard inquiries of the same nature that occur within a short period of time. These multiple inquiries will be treated as only one hard inquiry. For this reason, it is generally safe to “shop around” for a good interest rate without worrying that your credit score will drop from too many hard inquiries. 

    Keep in mind, though, that this only works if you’re applying for one type of credit product. If you’re applying for credit cards, loans, and mortgages all at the same time, these will each show up as separate hard inquiries on your credit report and will make a substantial impact on your credit score.

    Is There a Way I Can See What I Qualify for Without Impacting My Credit? 

    You can sign up for Borrowell to quickly check your credit score and instantly see your approval chances for credit cards, loans, mortgages, and more, all without impacting your credit score. This can help you apply for credit with confidence and avoid rejection. 

    Credit scores in Canada range from 300-900, where higher scores are more likely to be approved for credit and qualify for better interest rates. With Borrowell, you can find out your credit score, quickly compare terms and rates from over 50 lenders, and instantly see your chances of approval for each individual credit product based on your credit score.

    Because this is a soft credit inquiry, using Borrowell to check your credit score won’t cause a credit score drop! You can safely and easily check your score and know with certainty whether it’s safe to apply for credit, or if you have a bit more work to do to improve your credit score. 

    Sayana Izmailova
    Sayana Izmailova

    Sayana is a writer, graphic designer, and content marketing specialist. She has worked at a number of nonprofits, and as an entrepreneur she has a keen interest in personal finance and sharing best practices with others. Sayana is also a musician who writes and sings her own songs.

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