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 Or maybe you're looking to renovate an outdated kitchen to make it more functional.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
A rejection won't worsen your credit score
Does getting denied a loan affect your 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.
How much will my credit score go down if I get denied? ›
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.
How long after being denied a loan can I apply again? ›
Each time you apply for a loan or credit product there is a hard inquiry that can temporarily lower your score. That's why it's a good idea to wait at least 30 days before you apply again. However, if you don't need the funds urgently, experts recommend waiting at least six months.
What happens if you get rejected for a loan? ›
Applying for a loan will impact your credit rating. This is because the application involves a hard credit search. However, the search won't say if you were accepted or refused, so a loan rejection won't damage your credit score any more than an approval.
How long does a denied loan stay on your credit report? ›
Technically, lender decisions are not explicitly noted on your credit history, so a loan rejection will simply look like a dead-end inquiry. These hard inquiries can remain on your credit report for as long as two years, though, and can affect your credit score for up to a year.
How many hard inquiries are too many? ›
Since hard inquiries affect your credit score and what is found may even affect approval, you might be wondering: How many inquiries is too many? The answer differs from lender to lender, but most consider six total inquiries on a report at one time to be too many to gain approval for an additional credit card or loan.
How much will my credit score drop if I get a loan? ›
When you apply for a personal loan, lenders will run a hard credit check to have access to your credit report and history. Hard credit checks temporarily lower your credit score by as much as 10 points. But if you have excellent credit, applying for a loan will most likely make your score drop by five points or less.
Can I get a loan back after declining it? ›
If you were offered loans and either declined them or only accepted part of the loans you were offered, you can request to have the remaining amount available to you reoffered to you, so that you can accept more.
What if the lender rejects your loan application? ›
You should request an explanation from your lender as to why your application was denied. The lender is required to provide you this explanation in writing if you request it, and must to give you copies of the credit score upon which the denial was based. Don't be discouraged. Another lender may approve you for a loan.
Being denied for a credit card doesn't hurt your credit score.
How much does a declined loan affect credit score? ›
Applying for a loan or credit card can affect your credit score, but if the lender denies your application, that decision won't have any bearing on your credit health.
Does my credit score go down when I get a loan? ›
When you apply for a personal loan, lenders will run a hard credit check to have access to your credit report and history. Hard credit checks temporarily lower your credit score by as much as 10 points. But if you have excellent credit, applying for a loan will most likely make your score drop by five points or less.
Will a loan hurt my credit score? ›
And much like with any other loan, mortgage, or credit card application, applying for a personal loan can cause a slight dip in your credit score. This is because lenders will run a hard inquiry on your credit, and every time a hard inquiry is pulled, it shows up on your credit report and your score drops a bit.
Does your credit score go up when you get approved for a loan? ›
If your application is approved and you receive the loan, your credit score could drop still a few more points, as the new credit line decreases the overall average age of your accounts. There are, however, several ways a personal loan can help your credit, if managed responsibly.
Do declined payments affect credit score? ›
No, having a credit card declined will not show up on your credit report and will not hurt your credit score. It's very different from missing a credit card bill or loan repayment, which is not included in your credit history.
