Will it hurt my credit if I’m denied for a loan or credit card?

credit-applicationWhen you apply for credit, the potential creditor reviews your credit report and this act is recorded on your credit reports as an “inquiry.”  This inquiry simply indicates that you’ve applied for credit and your credit report was accessed. The inquiry includes the company name and inquiry date. Behind the scenes the inquiry is coded in such a way that a machine reading it will know from which industry it comes.

Inquiry doesn’t include the reason

A company reviewing your credit reports does not know the reason your report was requested. Just because I see an inquiry from “John’s Bank” doesn’t give me any clue what I’ve applied for other.  I just know who pulled your credit reports, and on what date. The inquiry does not include a back story regarding how much you applied for or whether or not you were approved.

Account and inquiry don’t often match

A potential new lender may try to match the inquiry to a new account on your credit report (sneaky!!). If there isn’t a matching account, they could make the assumption that you didn’t qualify.  This would seem logical, but this isn’t necessarily accurate.  The name listed on the inquiry may not match the company name for the new account. The inquiry may be from the marketing division and another division reports the account.

The fact that you did not qualify for credit is not reported on your credit report. Being turned down for credit does not hurt your credit, but new credit which includes applying for credit, comprises 10 percent of your credit score. Before you apply for credit you need to obtain a copy of your credit report and score to determine if you could qualify for the card or loan.  Applying for credit too often also has an impact.  Creditors consider seeking credit to be negative, which indicates you may be overextended.

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If you are turned down for credit, you need to understand the reason so you can improve your credit, so that you will be able to qualify for credit the next time you apply.

JRU on 60 Mins SetCredit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.