Q: I discovered I was turned down for a loan due an error on my credit report. Can I re-apply for the loan with the same lender, and will the credit bureaus remove the inquiry generated from the original loan since I have to re-apply due to their mistake?
A: If you discover an error on your credit report that cost you a loan – something that is a lot easier to do now that lenders are required by law to show why they denied the funds – you can absolutely re-apply for the loan once the mistake has been removed.
MainStreet has a guide for spotting and removing errors from your credit report designed to help those in this situation, but it basically entails notifying the credit bureaus – Experian, Equifax and Trans Union – that some misinformation has wound up on your report.
Once the bureaus (or bureau, as it is possible for each report to be different) have corrected the mistake, your score will automatically be updated to reflect the change.
However, “the credit reporting agency won’t erase the inquiry” generated when the lender checked your credit for the original loan, says Tom Quinn, consumer credit expert for Credit.com.
This can be problematic since hard credit card inquiries can cost your score to drop, but, as Quinn points out, it won’t be by all that much. Depending on how good or bad your credit was to begin with, most inquiries cost consumers between three and 25 points each.
And, while re-applying for the loan will generate another hard inquiry, consumers can bypass raking up too much damage if they get the error fixed immediately since many credit scoring models are equipped with what Quinn calls “special inquiry treatment logic.”
This means, as FICO spokesman Barry Paperno confirmed, the scoring model is smart enough to categorize multiple inquiries within a focused period of time -- typically during a 45-day period – as a single inquiry.
Keep in mind, however, a lot of this hassle can be avoided if a consumer checks his or her credit before they go looking for a loan, a move that can be done for free at least once a year and that also doesn’t generate an inquiry that will hurt your score.
Want to know what affects your credit score? Email your questions to firstname.lastname@example.org.