Credit Score Basics > Does being declined for a loan affect credit score?

Does being declined for a loan affect credit score?

Wollit Team2 minute read · Updated 29th June 2024

No, having your loan application rejected does not impact your credit score. However, applying for a loan can. Confused? Here’s how it works.

Can loan rejections show up on my credit report?

Your credit file does not say whether a particular application was approved or rejected. However, it does show the “hard checks” lenders ran on your credit report when you applied for the loans.

Lenders can only figure out if you have had many rejections before if they see a long list of hard checks on your credit report in a short period of time.

Can loan rejections hurt my credit score?

Not directly. However, having multiple hard checks in a short span of time can end up hurting your credit score—lenders and credit rating agencies see them as a red flag.

To stay safe, Experian recommends making no more than two applications in any six months period.

This is true even if you change your mind or choose the best option from multiple approved loans. It’s a much better idea to first use an eligibility checker and only apply for the loan you really want to get. Eligibility checkers use only “soft checks”, which are only visible to you and don’t affect your credit score at all.

What should I do after getting rejected for a loan?

Instead of applying for another loan immediately, you should take some time to understand why your application was declined in the first place.

First, read the decline notice from the lender. If you did get declined due to something on your credit report, the notice will say what it was. But if you were rejected because of incomplete information or lack of documents, just re-apply for the same loan by including all of the missing information this time.

Second, check your credit report. This will help you understand why the lender might have rejected your application. It will also let you spot and fix any inaccuracies or errors in your report.

Some examples of things you need to look for:

old hard checks that should have been removed;
closed accounts still marked as active;
or even signs of identity theft, like accounts you don’t recognise.

If you spot anything odd, reach out to the credit rating agencies so they can fix it.

Third, work on improving your credit score.

Some things you can do:

Register to vote at your current address (this will help credit rating agencies verify your identity).
Don’t use more than 25% of your credit card limit.
Make all payments on time and in full. Use a direct debit wherever possible.
Sign up for a service like Experian Boost.
Consider downloading a credit-building app like Wollit. Wollit reports your monthly subscription as loan repayment, potentially helping you build your credit history. It also reports your rent payments to Experian so lenders can see that you pay your bills on time.