diff --git a/src/NATS.Client.Core/Internal/UserCredentials.cs b/src/NATS.Client.Core/Internal/UserCredentials.cs
index 67ff30234..6f14ce311 100644
--- a/src/NATS.Client.Core/Internal/UserCredentials.cs
+++ b/src/NATS.Client.Core/Internal/UserCredentials.cs
@@ -159,7 +159,7 @@ internal async Task AuthenticateAsync(ClientOpts opts, ServerInfo? info, NatsUri
             using var reader = new StreamReader(path);
             return ParseCreds(reader);
         }
-        catch (NatsException e)
+        catch (Exception e)
         {
             throw new NatsException($"Error loading creds file '{path}': {e.Message}", e);
         }
diff --git a/src/NATS.Client.Core/NatsConnection.cs b/src/NATS.Client.Core/NatsConnection.cs
index 111709253..b814a3676 100644
--- a/src/NATS.Client.Core/NatsConnection.cs
+++ b/src/NATS.Client.Core/NatsConnection.cs
@@ -394,9 +394,26 @@ private async ValueTask InitialConnectAsync()
                 throw new NatsException($"URI {uri} requires TLS but TlsMode is set to Disable");
         }
 
-        if (!Opts.AuthOpts.IsAnonymous)
+        try
+        {
+            if (!Opts.AuthOpts.IsAnonymous)
+            {
+                _userCredentials = new UserCredentials(Opts.AuthOpts);
+            }
+        }
+        catch (Exception ex)
         {
-            _userCredentials = new UserCredentials(Opts.AuthOpts);
+            var exception = ex as NatsException ?? new NatsException($"Failed to load credentials: {ex.Message}", ex);
+            lock (_gate)
+            {
+                ConnectionState = NatsConnectionState.Closed; // allow retry connect
+
+                // throw for the waiter
+                _waitForOpenConnection.TrySetObservedException(exception);
+                _waitForOpenConnection = new TaskCompletionSource(TaskCreationOptions.RunContinuationsAsynchronously);
+            }
+
+            throw exception;
         }
 
         var attemptedUris = new List<NatsUri>();
diff --git a/tests/NATS.Client.CoreUnit.Tests/NatsConnectionAuthTests.cs b/tests/NATS.Client.CoreUnit.Tests/NatsConnectionAuthTests.cs
new file mode 100644
index 000000000..221d03dfa
--- /dev/null
+++ b/tests/NATS.Client.CoreUnit.Tests/NatsConnectionAuthTests.cs
@@ -0,0 +1,27 @@
+namespace NATS.Client.CoreUnit.Tests;
+
+public class NatsConnectionAuthTests
+{
+    [Fact]
+    public async Task ConnectAsync_MissingCredsFile_SecondCallDoesNotHang()
+    {
+        var missingPath = Path.Combine(Path.GetTempPath(), $"nats-missing-{Guid.NewGuid():N}.creds");
+        var opts = NatsOpts.Default with
+        {
+            Url = "nats://127.0.0.1:4222",
+            RetryOnInitialConnect = false,
+            AuthOpts = NatsAuthOpts.Default with { CredsFile = missingPath },
+        };
+
+        await using var nats = new NatsConnection(opts);
+
+        var first = async () => await nats.ConnectAsync();
+        await first.Should().ThrowAsync<NatsException>();
+
+        var secondTask = nats.ConnectAsync().AsTask();
+        var completed = await Task.WhenAny(secondTask, Task.Delay(TimeSpan.FromSeconds(5)));
+        completed.Should().BeSameAs(secondTask, "second ConnectAsync must not hang");
+        var second = async () => await secondTask;
+        await second.Should().ThrowAsync<NatsException>();
+    }
+}