Credit score

Is a credit card decline hurting your credit score?

Being turned down for a credit card is never a good feeling. I remember when I was a student and I was so excited to apply for credit cards and then ended up disappointed when I got rejected for the cards. I took it personally, not to mention that it’s no fun missing out on great credit card offers.

Luckily these days, I rarely get denied credit cards, even though I have over two dozen credit cards. This is thanks to the fact that I have a more established credit history and also understand the impact of my actions on my credit score, from opening card accounts to closing card accounts.

Readers often present me with situations and ask me what I think their chances of approval for a particular card are. While I’m happy to give my best guess, perhaps the biggest question should be whether it really matters. What is the real impact on your credit score when you are denied a credit card?

How are credit scores calculated?

For some background, let me first post a quick refresher on how your credit score is calculated (if you already know that, definitely skip this section). Your credit score is made up of the following:

  • 35% of your score is your payment history (whether you pay on time)
  • 30% of your score is your credit usage (the amount of credit you use compared to your total limits)
  • 15% of your score is your credit age (the average age of your credit accounts)
  • 10% of your score corresponds to the types of credit you use (how many different types of credit applications you have)
  • 10% of your score matches your new credit inquiries (how many times you’ve applied for credit, including credit cards)

Your conclusion here should be that if you make your payments on time, don’t overuse your credit, and keep your average account age fairly old, that’s 80% of your credit score. That’s what should matter the most.

What is the impact on your credit when applying for a credit card?

The only immediate impact on your credit score from a credit card application is that there is a new application on your credit file. 10% of your credit score is made up of your new credit applications, so this is the aspect of your credit score that would be impacted by a credit card application.

Generally speaking, you can expect on average your score to be reduced by two to three points for each request. However:

  • Since your credit score is on a scale of 300 to 850, two to three points really shouldn’t matter to most consumers.
  • Everyone’s credit score will work differently, so some people may be more affected by an investigation than others, depending on the total number of factors at play.
  • There are potentially very positive impacts to applying for credit cards, assuming you are approved – having a new card can increase your available credit and can help with on-time card payments
  • An inquiry disappears from your credit file after 24 months (and in reality any drop in score can be undone long before that)

What happens to your credit score if you’re declined for a card?

The credit card application results in an investigation into your credit score, but does the impact of this differ depending on whether you are approved or denied? Well, the good news is that there is no real “penalty” for declining a card.

It’s not like the card issuer puts a note on your credit report saying you’re not creditworthy, or anything. On the contrary, the credit report simply reflects the investigation, but does not show that the account was opened, and that is not serious at all.

It would be no different than if you applied for a card, were approved, and then decided you didn’t want the card. The good news, then, is that you can be declined for any number of cards in your lifetime, and it shouldn’t have a major negative impact on your credit score.

Should you just ask for cards and see what happens?

As I mentioned above, the background to all of this is that readers often ask me what I think their chances of being approved for a particular card are. My advice is generally not to be too careful when applying for cards, but also not to apply recklessly.

My view:

  • Check your credit score before applying for cards to get an idea of ​​where you stand
  • If you go to ask for a card and get turned down, try to learn from it; in other words, if you’re turned down for a Chase card, don’t just apply for six more Chase cards right after, thinking you might be approved for one, but instead change something about your behavior as a as consumer, then try again
  • Personally, my credit score is around 830, and I tend to think that anything over 740 is somehow “wasted”, in the sense that anyone with a score in that range should be approved for cards, getting the best financing rates, etc. ; based on this, I’m also more likely to ask for cards

At the end of the line

While getting rejected for anything in life isn’t fun, the good news is that getting a credit card denial isn’t as bad as you might think. The only thing that really happens is that an inquiry appears on your credit file, which could temporarily lower your score by a few points. Unless you’re on the verge of a great credit rating, the impact of this should be negligible.

In general, I encourage people with great credit to apply for cards even if they’re not sure they’ll be approved, but be realistic and smart about it. If you’re straight out of school, start with an Amex card rather than a Chase card. If your credit score isn’t great, maybe be a little more conservative than if you have a great credit score.

Hopefully this answers questions many might have about declining credit cards.