Does Getting Turned Down for a Mortgage Affect Your Credit Score?

You don't lose points for a rejected mortgage application. FICO does not know if you have been turned down. Also, your lender may turn you down for reasons FICO does not use in scoring you. Poor or erratic work history and low income may hurt a mortgage application. Lenders want to see you have steady income. In fact, to qualify for many loans, your mortgage payments cannot exceed 26 percent to 28 percent of your income. However, FICO does not look at what you make or bring home or how long you have stayed at a job.

FICO might nip a few points if you have applied for many mortgages in a short time. A mortgage or credit card application generates a "hard" inquiry from the lender or credit card company into your credit history. Several of them can make you appear a greater credit risk because you are relying too much on credit. According to FICO, those with at least six inquiries are eight times more likely to run to bankruptcy.

A rejected mortgage can be your wake-up call to reduce your debt. Smaller debt means better credit grades because you are less likely to be maxed-out on many cards. FICO bases 30 percent of your score on your how much debt you have compared with your credit limits. Mortgage lenders decide whether to qualify based on your debt-to-income ratio, which represents the total of your existing debt, such as credit card debts and car loans, and your anticipated mortgage payment compared to your pre-tax income. Generally, programs under the United States Department of Housing and Urban Development do not allow your existing debt and the mortgage payment to exceed 43 percent of your income.

Turn rejection into a reason to tend to your credit record. FICO advises that you check your credit report for errors that might falsely lower your score. Get a free credit report each year from annualcreditreport.com. Improve your payment history, which accounts for 35 percent of your FICO credit score. Use your computer or smartphone to receive payment alerts or enroll in automatic payments if you only care about making the minimum payments.

Poor credit and past rejection do not have to keep you out of a home. The Federal Housing Administration assists many striving to own a home through easy credit qualifying, low payments and low down payments. FHA-backed loans allow many with credit problems to qualify for a loan because FHA will protect the lender if you miss payments. These mortgages only require you to put down 3 percent of the home price. You can also strengthen your credentials as a loan applicant. Stay at the same job or in your field for at least five years, unless a better paying job comes along.