Is your credit score impacted if you’re denied a car loan?

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It doesn’t matter how many times before you have applied successfully for credit, there is always a nervous moment as the sales person goes off to perform the credit check and approval. Most of the time it’s quickly over and it is good news. Not always though. So does being denied a car loan impact your credit score?

The short answer is no. Being denied credit will not impact your score. The longer answer is, well, longer.

Credit scores
If you have read my other posts on car loans and credit, you will already realize that your credit score is made up of a range of metrics that paint a picture of you as a financial entity and as a risk. The lower the risk you are seen to be, the higher your score. The higher the risk, the lower the score.

One curiosity with credit scores is how they are made up. A successful credit application can impact your credit score. It increases the level of affordable credit you hold which is taken into account with affordability and your record of payments will obviously work for or against you.

However, unsuccessful credit applications are not recorded. All that is noted is a hard inquiry. There may be no further annotations with regards taking out that credit but there is nothing recorded to say it was denied.

All lenders really care about is that you can afford the repayments on a loan and that you have a record of successfully servicing your debt by paying on time.

Credit inquiry
When you apply for any kind of credit, an inquiry is made on your file. One type of inquiry, the hard inquiry can potentially impact your score. A soft inquiry will not. When you apply for credit, a hard inquiry will be made which is noted on your record. That inquiry will not record whether you were approved for credit or not. Just that an application was made.

If you make one or two credit applications within a short space of time, this does not count against you. We all shop around for a good deal so a small number of inquiries within a short space of time is normal.

Apply for lots of different types of credit and that begins to change. As each hard inquiry is recorded, your record begins to look a little shakier. A lender is going to wonder why you are suddenly trying to max out your credit and wonder if you will be able to pay it all back.

As long as you don’t apply for lots of credit all at once and always pay on time, an unsuccessful credit application has absolutely no impact on your credit score.

If you’re looking for a car loan at competitive rates, visit Car Nation Canada today!
Categories: News
Tags: car loan, credit
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