The Potential Downsides of Repeatedly Applying for Credit After Being Declined

Getting declined for a credit card or loan can be disappointing However, repeatedly applying after being declined can actually make it even harder to get approved for credit in the future In this article, we’ll explore what can happen if you keep applying after being declined and how to boost your chances of approval.

Hard Inquiries Can Lower Your Credit Score

When you submit a credit card or loan application, the lender performs a hard inquiry to check your credit report. Hard inquiries can lower your credit score by a few points, especially if you have several in a short period of time. Too many hard inquiries can signal to lenders that you’re desperate for credit.

According to FICO, each hard inquiry can reduce your credit score by less than 5 points. However, the more recent and frequent the inquiries, the greater impact they can have.

Repeated Denials Make You Look Riskier

If a lender keeps rejecting your applications, it’s a red flag to other lenders reviewing your credit report. Multiple recent denials suggest you may be taking on too much debt or have other issues like missed payments or high balances.

As a result, each denial can make additional lenders more hesitant to approve you. It creates the perception that you are a riskier borrower.

Tips to Get Approved After Initial Denials

If you’ve been turned down for credit, don’t keep applying blindly. Take some proactive steps to strengthen your application first.

• Review your credit reports. Make sure there are no errors negatively impacting your score. Dispute any inaccurate information.

• Pay down balances. High utilization hurts your credit score. Try to get balances below 30% of the credit limit.

• Become an authorized user. Being added as an authorized user on someone else’s account can help build your credit history.

• Limit applications. Space out applications by 6 months or more. Don’t apply for multiple cards or loans at once.

• Apply for secured cards. Secured cards require a refundable deposit, but are easier to qualify for. They help establish credit.

• Ask about reconsideration. Some lenders may be willing to re-evaluate your application if you call their reconsideration line.

• Get a cosigner. Adding someone with good credit as a cosigner improves the chances of approval. Just be sure they understand the responsibility.

• Prequalify first. Many lenders let you prequalify to check your approval odds without a hard inquiry on your credit report.

How Long Should You Wait to Reapply After a Denial?

There’s no set waiting period before you can reapply after being declined for a credit card or loan. However, it’s best to wait at least 6 months between applications for the same type of credit.

For example, if you’re denied for a new credit card, wait 6 months before applying again for another card. This shows lenders you’re being selective and strategic. It also gives you time to implement strategies to strengthen your creditworthiness.

If you’re desperate for immediate credit, applying for a secured credit card with a deposit or becoming an authorized user are options that won’t require waiting.

Denials Don’t Directly Hurt Your Credit Score

It’s important to understand that the act of being denied credit itself does not directly harm your credit score. As long as you applied, the lender had to check your credit report, creating an inquiry. But the lender’s decision of approval or denial is not reported.

According to Experian, a credit denial won’t show up on your report at all. However, those pesky hard inquiries required to apply will appear for two years and can indirectly impact your score.

So while being repeatedly denied won’t tank your score on its own, it can contribute to a downward trend when combined with the credit checks. It’s why strategic applications are so important.

How to Check Why You Were Denied

If you are declined for new credit, the lender must provide the specific reasons why in what’s called an adverse action notice. However, it can take days or weeks to receive this notice by mail after a denial.

Calling the lender as soon as possible and asking for the adverse action department is the quickest way to learn why you were denied. Understanding the reasons is crucial for pinpointing the best ways to improve your chances for future approvals.

When Getting Declined Could Be a Blessing in Disguise

As frustrating as credit denials may be, they can sometimes be a blessing in disguise. Perhaps the loan or credit card you applied for wasn’t an ideal fit or had high interest rates or fees.

The denial provides an opportunity to take a step back and re-evaluate whether you really need or can afford to take on additional credit at the moment.

Building savings, paying down existing debts, or waiting for your credit to improve often puts you in a better position long-term. With time and perseverance, approvals will come for the credit accounts best suited for your needs.

Don’t Take Rejections Personally

Lastly, don’t let denials devastate you. They aren’t meant to be personal. Credit applications are simply business decisions by lenders. If one lender rejects you, another may still approve you for credit if they view you as less risky based on their own criteria.

Recover from the initial disappointment, make a plan to boost your credit health, and remain patient. With financial responsibility and some time, those approvals will start coming your way.