Being turned down for credit is often disappointing but causes little damage to your credit score unless you apply repeatedly. An inquiry is added to your credit report each time a creditor reviews your file, with excessive inquiries causing your credit score to drop. A single inquiry usually has little effect.
Credit Bureaus
TransUnion, Equifax and Experian are three major credit bureaus providing credit reports to banks, mortgage companies and other lenders. Credit reports contain detailed information about your credit, including the number of credit accounts, credit lines, balances and payment history. Information obtained from public records also appears and could include judgments and tax liens.
Hard Inquiries
Credit reports also list creditors who reviewed your report after you applied for credit. The reviews are listed as so-called "hard inquiries" because you initiated the credit review by applying for a loan, credit card or credit limit increase. Most people apply for credit only a few times a year; applying more than that can hurt your score.
Credit Score
Credit scores are three-digit numbers ranging from 350 to 850 and are used to determine creditworthiness. Scores of 720 or higher are excellent, with scores below 620 considered poor. Several factors contribute to low scores, including excessive debt, missed payments and other negative information including charge offs and collection accounts. Hard credit inquiries are also a factor, but it is impossible to predict exactly how much an inquiry will affect your credit score. Single inquiries may affect your score by a point or two, if at all.
Applying
Check your credit report and score before applying for credit. Obtain a free copy of the report from AnnualCreditReport.com. The website is managed by the credit bureaus and offers free reports under terms of the Fair Credit Reporting Act. It is the only site endorsed by the Federal Trade Commission for offering free reports. Obtain your credit score separately, for a fee, by following instructions on the report.
Errors
Review the credit report for errors and then write the credit bureau at its address on the report to dispute any information that is wrong. The Fair Credit Reporting Act, a federal law, requires credit bureaus to respond to you within 30 days after receiving your letter. The credit bureau must tell you if it agreed with your complaint and any action it took, such as deleting incorrect information. Obtain an updated copy of your credit report to confirm changes, if applicable. Also, ask about general credit approval standards before applying for a loan. A loan officer or representative from the lender's customer service department can provide guidelines. Reviewing your credit report and score before applying for a loan can help avoid being turned down.
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