Yes, a credit card application that an issuer turns down will affect your credit score. However, the impact will be no different than what would result if your application gets approved, with the sole exception being that your credit won’t be further affected by a new trade line also appearing on your major credit reports.
You see, each time that you apply for a credit card, the respective credit card company will check out your credit history in order to make an informed decision about whether or not you can manage an additional line of credit as well as what card terms your previous financial performance warrants. This is what’s known as a hard inquiry. Credit card inquiries are listed individually on your Experian, Equifax, and TransUnion credit reports and will remain there for two years.
However, the only way for someone who looks at your credit reports to determine if you were approved or denied for a credit card will be to compare your inquiries to your trade lines.
This is all important as far as your credit score is concerned because credit scores are based on the information in your major credit reports, and “New Credit” (which includes inquiries and new trade lines) accounts for about 10% of your overall score. If you don’t get approved for a credit card, you obviously won’t reap the long-term credit score benefits of having a new account and the additional available credit that comes with it (assuming you use the account responsibly), but the denial itself won’t cause any more damage than if you were to get approved for a card and immediately cancel your new account.
How Significant Will the Damage Be?
The extent of the credit score damage that results from a credit card application depends on the number of applications you’ve submitted in the past year as well as the other information in your credit files.
The New Credit portion of your credit score takes into account recent inquiries (those made in the past 6-18 months, depending on the particular credit score). A number of inquiries made during that window indicate to banks and other decision makers looking into your credit history that you are potentially desperate for additional spending power. That, in turn, can signal that you are spending beyond your means and therefore run the risk of encountering serious financial difficulties, such as default or bankruptcy, in the near future.
Exactly how far your credit score falls as the result of multiple inquiries made within a short period of time is, as mentioned above, also a product of how much positive information you have in your credit reports to effectively devalue the impact of the numerous applications. If your credit reports indicate longtime responsible use of credit, then the impact will be far less significant than it would be if you had limited credit history or negative information in your files. In either case, there is no specific number by which your credit score will drop based on repeated credit card applications.
Nevertheless, we can definitively say that a single credit card application – regardless of whether it ends up getting approved or denied – will have little or no impact on your credit standing, and the damage resulting from multiple applications will only be temporary.
How to Minimize the Impact
The best way to mitigate the damage of repeated credit card applications is obviously not to make them. But, you may ask, how are you then supposed to get a credit card in order to add positive information to your credit reports and improve your credit standing?
By getting a secured credit card, of course.
Secured credit cards are far easier to get than “normal” credit cards by virtue of their security deposit requirement. Credit card companies require that you place a refundable security deposit that will serve as your credit line when applying for a secured card because that eliminates much of the risk posed by extending credit to what is often considered a risky consumer segment.
So, your rule of thumb should be to apply for a secured card if you don’t get approved for a regular credit card after an application or two. In most cases, your credit will have improved enough after 12-15 months of responsible secured card use to get an unsecured credit card.