Will My Credit Score Go Down If I Am Denied a Credit Card?

According to credit bureau Experian, being denied a credit card will not cause your credit score to go down because you were rejected. The reason is that your credit report does not provide details on whether or not any application has been declined or approved. Since the credit bureaus do not know, a decline does not create an impact on a credit score. 

Applying for the card does create a hard inquiry though. Such an inquiry demonstrates that you applied to obtain more debt even though the available credit or debt does not yet show up on your personal credit report. The fact that no new account appears on your report does not mean your application was denied. It alternatively could mean that you decided not to accept the credit account or loan. 

Applying for a credit card (whether it is accepted or rejected) does harm your credit score in the 10 percent component for new credit inquiries. This results from the bureaus understanding that possible new debt creates potential credit risk. The good news is that such an effect is usually quite small. It will decline in importance with time too. 

Remember that timely payment history on approved accounts (at a 35 percent of credit score component) is the most important element in your credit scoring. 

To put this into perspective, this payment history outweighs the impact of new credit inquiries by three and one half times. 

Does Opening a New Credit Card Hurt My Credit Score?

The answer to this question depends on four factors. If you are opening your first credit card, a new card account could improve your credit score. Without a credit card it is possible that you do not even possess a credit score. After six months of this new account, enough information will exist for the credit score calculation to create a score for you.

For other scenarios, opening a new card can hurt your score some. It creates a hard inquiry that shows up on your credit report when you apply. This remains whether or not you accept the card or receive approval for it.

Since these types of inquiries are a 10 percent component of your credit score, every subsequent hard inquiry could mean the loss of several points on your credit score. This could be the difference between a good and bad credit score (translating to a good interest rate and a mediocre one on a loan).

Another factor with a new card is that new credit cards reduce the age of your average credit. Another 15 percent of your score component comes from the age of your credit (measuring your experience in managing credit). All else being equal the greater your credit experience, the higher your score will be.

Two elements make up your credit age component. It measures the age of your original account as well as your average length of history for all accounts. The longer it has been since you opened your last account, the more this will reduce the average age for your credit accounts. 

The last factor has to do with credit utilization, which makes up 30 percent of your credit score. If you do not make major purchases on your new credit card, then your credit utilization ratio will drop and so improve your score. Should you open a new account and immediately run up the balance, then your credit utilization may increase enough to cause a substantial hit.

You should seek to keep this credit utilization number below 30 percent (and even better under 10 percent) as much as possible. The more of your new credit limit you are utilizing, the worse the impact on your credit score will be. 

How to Build Credit With Help From Mom or Dad?

Two great ways that mom and/or dad can help you with your financial start is by making you an authorized user on a credit card they have or by co-signing a loan together. Other family members or close friends could also do this for you.

By making you an authorized user, your parents get you a credit card with your name on it. They can benefit by helping you this way if it is a rewards credit card. You will receive credit history credit for the timely payments they make on the card account. Your parents will earn either cash back or points for every dollar in purchases you make. 

There are two things your parents will need to consider. There could be yearly fees for having authorized users. The other is that they are responsible for repaying any charges that you make even if you do not pay for them. 

If your spending significantly increases their debt load (credit card utilization), then both of your credit scores will be harmed. 

The second way your parents can help is by co-signing on a car loan, student loan, or for a credit card. If your parents have good credit, this will significantly improve your chances of successfully qualifying. With a co-signed loan, you are both responsible for repaying the credit or loan. 

If you are under 21 years of age, the Credit Card Accountability Responsibility and Disclosure Act from 2009 (CARD) mandates that you must have a co-signer who is an adult, unless you can demonstrate enough independent income of your own to pay back credit card charges and balances. 

Do I Have to Wait Seven Years to Get Good Credit After Problems in the Past?

Unfortunately, seven years is the time length for many kinds of negative items listed on your credit report to disappear. Late payments, charged off accounts, debt collection efforts, and Chapter 13 bankruptcy are all included in the seven years to drop off your report. Other more serious items like tax liens you have not paid, judgments, and Chapter 7 bankruptcy can stay on your report for longer than seven years.

The reason that seven years is significant is that the majority of negative reported items drop off your credit report at this point. This will not cancel the debts (if they are unpaid especially). You will still owe the debt even if it has been dropped from your credit report. 

These debt collectors, lenders, and creditors may still pursue various legal means to collect these debts that are no longer listed. They can send letters, call you, or garnish wages with court permission. Some states allow creditors to sue to collect a debt for longer than seven years, according to the state’s statute of limitations. 

You can engage a credit repair firm or debt lawyer to help challenge negative items on your personal credit report. If they are successful in getting these items overturned, then the negative items on your report will be dropped when the matter is resolved instead of over seven years. 

How Does Divorce Affect My Credit Report?

With so many people divorced these days, it is important to know how this will impact your credit report. The good news is that divorce does not directly affect your credit scores. Instead the financial issues that swirl around the proceedings can cause you to miss payments or to be late with them, lowering your score and hurting your credit history. 

A common problem from messy divorces is that the attorney fees can wipe you out financially. If you are unable to keep up with your bills, this will impact the 35 percent FICO credit score category of timely payment history.

If you no longer have enough income to keep up with your expenses after the divorce, you also may turn to using your credit cards to fill the gap. This would cause your credit card balance utilization (the second most important category at 30 percent) to become dangerously high (over the 30 percent FICO looks at) in short order. 

Another problem could surround who will pay the bills on joint accounts like mortgages and credit cards. The divorce court judge may rule that your spouse is required to make the payments. If your spouse has a lower credit score and is unconcerned with this, they simply may not make the payments. 

A spouse might also be resentful of making payments for assets that were awarded to you (like a home). Because your name is also on the joint accounts, late payments and delinquent accounts will adversely affect your credit score and history too. 

The credit bureaus do not know or care if you are married or divorced. This status does not even show up in any of your credit history. They do notate all names on the accounts regarding repayment issues though.