It's tempting to apply for an in-store credit card so you can get that instant, extra 20-percent discount. Likewise, those zero interest credit card offers from banks can seem appealing for a balance transfer. However, any new request for a credit card influences your credit. Should you get turned down, your credit score will take a tumble.
Three companies, Equifax, Experian and TransUnion, determine a credit score for every consumer. The scores range from 300 to 850; the higher your score, the better credit risk you are in the eyes of creditors and lenders. The score is based on complex factors, but it comes down to how punctual you are with bills, your overall debt burden, the number of unpaid accounts on your record and if you've settled any accounts with creditors. The credit bureaus also keep up with how many open accounts are in your name.
Each time you apply for a credit card, a "hard" inquiry is posted to your credit record. These kinds of inquiries, including credit card and loan applications, are factored into your credit score. "Soft" inquires, such as those made by businesses trying to get on you on a solicitation list, don't count. Each inquiry you authorize, and also those conducted by businesses without your permission, are listed on your report.
Impact of Inquiries
A denial means there was some concern about your credit worthiness, which is a problem. However, the denial alone may not significantly reduce your credit score if you have an extensive credit history. On the other hand, the denial will leave a deep scar if you have a limited credit history. This is a good reason to avoid even asking for the new card unless you're sure your credit is in good shape. Approximately 10 percent of a credit score is based on the number of inquiries. Each hard inquiry can take five or more points off your credit score. Creditors may see several inquiries as a sign of desperation for credit, which increases the chances that you'll get turned down.
Fair Credit Reporting Act
As depressing as the rejection may be, you owe it to yourself to find out why it happened so it won't occur again. Contact each credit reporting agency and ask for a copy of your report. You have the right to do this once per year, for free, through the Fair Credit Reporting Act. If you find anything wrong, especially accounts under your name that you don't really have, you must follow through and let the agencies know about the mistake. The contact information is available on the websites of each credit bureau.
- Burke/Triolo Productions/Brand X Pictures/Getty Images
- How Long Does a Cancelled Credit Card Stay on a Credit Report?
- How to Find Out if a Bill Collector Is Legitimate
- How Do I Increase a Credit Score Quickly?
- How Can Disputed Accounts Affect Your Credit Score?
- How to Add Remarks to Credit Report
- What Does Derogatory Public Record Mean?
- Can a Debt Collector Make Inquiries on Your Credit?
- How to Build or Improve Credit Score