diff --git a/CHANGELOG_PENDING.md b/CHANGELOG_PENDING.md
index 70b361d26..08f53c6e0 100644
--- a/CHANGELOG_PENDING.md
+++ b/CHANGELOG_PENDING.md
@@ -23,6 +23,7 @@ Special thanks to external contributors on this release:
 - P2P Protocol
 
   - [p2p] \#7035 Remove legacy P2P routing implementation and associated configuration options. (@tychoish)
+  - [p2p] \#7265 Peer manager reduces peer score for each failed dial attempts for peers that have not successfully dialed. (@tychoish)
 
 - Go API
 
diff --git a/internal/p2p/peermanager.go b/internal/p2p/peermanager.go
index 7ccc0d59c..8c37cc1ff 100644
--- a/internal/p2p/peermanager.go
+++ b/internal/p2p/peermanager.go
@@ -532,6 +532,7 @@ func (m *PeerManager) DialFailed(address NodeAddress) error {
 	if !ok {
 		return nil // Assume the address has been removed, ignore.
 	}
+
 	addressInfo.LastDialFailure = time.Now().UTC()
 	addressInfo.DialFailures++
 	if err := m.store.Set(peer); err != nil {
@@ -602,6 +603,7 @@ func (m *PeerManager) Dialed(address NodeAddress) error {
 		addressInfo.LastDialSuccess = now
 		// If not found, assume address has been removed.
 	}
+
 	if err := m.store.Set(peer); err != nil {
 		return err
 	}
@@ -660,6 +662,11 @@ func (m *PeerManager) Accepted(peerID types.NodeID) error {
 		peer = m.newPeerInfo(peerID)
 	}
 
+	// reset this to avoid penalizing peers for their past transgressions
+	for _, addr := range peer.AddressInfo {
+		addr.DialFailures = 0
+	}
+
 	// If all connections slots are full, but we allow upgrades (and we checked
 	// above that we have upgrade capacity), then we can look for a lower-scored
 	// peer to replace and if found accept the connection anyway and evict it.
@@ -1287,15 +1294,23 @@ func (p *peerInfo) Score() PeerScore {
 		return PeerScorePersistent
 	}
 
-	if p.MutableScore <= 0 {
+	score := p.MutableScore
+
+	for _, addr := range p.AddressInfo {
+		// DialFailures is reset when dials succeed, so this
+		// is either the number of dial failures or 0.
+		score -= int64(addr.DialFailures)
+	}
+
+	if score <= 0 {
 		return 0
 	}
 
-	if p.MutableScore >= math.MaxUint8 {
+	if score >= math.MaxUint8 {
 		return PeerScore(math.MaxUint8)
 	}
 
-	return PeerScore(p.MutableScore)
+	return PeerScore(score)
 }
 
 // Validate validates the peer info.