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How getting rejected for credit affects your credit scores

A broken heart can last forever. When you get rejected for a card, how long does it take for this financial wound take to heal?

By Apr 2, 2014 4:25PM

This post comes for Christine DiGangi at partner site on MSN MoneyNo matter how much of a glass-half-full person you are, rejection is an unpleasant experience. You've made yourself vulnerable by asking for something, so hearing "no" can easily break your spirit. It doesn't need to be that way.

A man cutting up credit cards © Stella, fStop, Getty ImagesWhen you apply for a loan or credit card, whether you're approved has no bearing on your credit standing. That's not to say applying doesn't affect your credit — it does — but you don't need to be worried that getting rejected will have an adverse effect on your credit score.

A potential lender will pull a copy of your credit report to assess your risk level and whether to lend you money. That action is called a credit report inquiry, and inquiries used in lending decisions are called hard inquiries (as opposed to soft inquiries, which are not factors in lending decisions).

These hard hits on your credit report will cause a small, temporary drop in your credit score, so applying for credit here and there won't have much of an impact on your score. The result of that inquiry — approval or rejection — doesn't appear on your credit report.

Keeping rejection under vontrol

If you've been rejected for a loan or credit card, you're likely to want to apply for another one. While it's good that rejection doesn't directly hurt your credit, it leaves you with a dilemma: Do you apply for something else and add another hard inquiry to your credit report, or do you figure out how to go on without the loan and protect your credit score?

If you apply for many credit products within a short period of time, you’ll see your credit score drop considerably — that small impact of a single hard inquiry can quickly add up as a result of multiple applications.

(There’s an exception to this: Multiple inquiries that appear in a short period of time as a result of mortgage, auto loan and student loan applications may be counted as a single inquiry. This allows consumers to shop for the best deal without hurting their credit scores, but the time frame varies by credit-scoring model: It can be anywhere from 14 to 45 days where multiple inquiries for similar loan products count as a single inquiry.)

The takeaway here is to apply for credit you qualify for, and to do that, you need to know where you stand. You can get two credit scores for free with the Credit Report Card,  so you get an idea of if you have excellent, fair or poor credit before you start applying.

As much as you may want to quickly get a loan or credit card, the application process is a strategic one, so make sure you’re doing all you can to  increase your chances of approval.

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