Does Getting Denied Credit Increase or Hurt Your Credit?

Being denied credit, such as an increased limit on a credit card, a car loan or a store credit line, can be disconcerting. A credit denial doesn't devastate your credit, though. The denial doesn't show up on your credit report at all, but the credit inquiry does. Too many credit inquiries can have a negative effect on your credit report and score.

Credit Inquiries

When you apply for credit, it generates an inquiry on your credit report. Multiple inquiries in a short period for multiple types of credit can lower your credit score, whether you're denied or approved for the new credit. If you are shopping for a loan, though, such as a mortgage or car loan, and you have multiple inquiries because of shopping for a rate, it doesn't have a negative effect on your credit. The credit scoring system doesn't count multiple inquiries for the same type of credit within a 30-day period.

Credit Report

Any time you're denied credit, you're entitled to a free copy of your credit report from the company that provided the information leading to your denial. Your credit report details accounts you've applied for, accounts that you have open and accounts that you've closed, along with delinquencies. You are also entitled to one free credit report each year, regardless of whether you've applied for credit. You can obtain your free credit report from the Annual Credit Report website. If there are any mistakes, write to the reporting company and let it know. Correcting mistakes on your credit report increases your credit score and improves your chances of being approved for new credit and credit line increases.

Credit Score

Your credit score isn't included in your credit report. You can obtain it through any of the three main credit reporting agencies (TransUnion, Equifax, Experion) or through the Free Isaac Corporation, which is the company that actually compiles credit scores. Your credit score isn't free, but it is worth paying to obtain a clearer sense of your creditworthiness. If you're denied credit, it doesn't inherently lower your credit score. Multiple inquiries will lower your credit score, as will late payments and having high balances on your credit cards.

Increasing Your Credit

Increasing your credit score takes time. You have to have a sustained period of on-time payments on all of your bills, loans and credit cards. You have to pay down credit cards so you're not carrying high balances as compared to your credit lines. Apply for new credit only if you absolutely need it.