Creditor
Adverse Action
Adverse action summary:
Creditors are required by law to tell you why you were denied credit if the reason was due to something on your credit report.
An adverse action notice will generally include your credit score, the name and contact info for the credit bureau it came from, and instructions for disputing credit errors.
You don't need to respond in any way to an adverse action notice.
Adverse Action Definition and Meaning
An adverse action is a negative change to an existing account or the denial of an application for a product, service, or job that is based on information from a consumer report, such as your consumer credit report.
An adverse action notice is notification of an adverse action and factors that influenced it. Creditors are required to make an adverse action notice within 30 days of receiving your application or making a negative change to the terms of your existing account due to a review of your consumer reports.
What's Included in an Adverse Action Notice
The Fair Credit Reporting Act (FCRA) says the notice of an adverse action based on your consumer credit report must include:
Your credit score, if one was used.
The key factors that negatively impacted your score.
The name and contact details of the credit bureau that supplied the credit report.
A statement making it clear that the adverse action wasn't taken by the credit bureau itself. (The bureaus just provide the information, the creditors choose what to do with it.)
A notice that you can dispute inaccurate or incomplete accounts on your credit report.
The name of the credit bureau used is actually a fairly big deal, since your credit score could be different depending on the bureau. Each of the three major bureaus, Equifax, Experian, and TransUnion, are independent. This means there could be different information on each of your credit reports, giving you different scores.
What to Do if You Receive an Adverse Action Notice
You don't necessarily have to do anything if you receive an adverse action notice. It's just an FYI letter to let you know why your application was denied or what triggered the change to your account.
If you're surprised by the information in the adverse action notice, check your credit reports for free at AnnualCreditReport.com to get a better idea of your credit situation. Dispute errors and fraudulent accounts immediately so your credit score can recover.
In cases of errors, you may find success contacting the creditor for reconsideration. The creditor might reconsider your application if you can show that the problem was an inaccurate entry or fraudulent account.
One good thing about an adverse action notice is that it tells you what you need to work on to be a stronger candidate for future applications. For instance, you might need to pay down debt to improve your credit utilization or pay accounts on time to develop a good repayment history.
However, you may also use this information to find creditors that are willing to approve applications for people with the same issue. If you were denied when applying for unsecured credit, consider a secured credit alternative.
Adverse Action FAQs
The Fair Credit Reporting Act (FCRA) is a federal law enacted in 1970 that aims to protect the accuracy, fairness, and privacy of the details within consumer credit files—meaning the credit reports issued by credit bureaus like Experian, Equifax, and TransUnion. This law governs how and when credit reporting agencies can gather, access, employ, and share the data they collect on consumers like you and me. The FCRA also prevents your credit report from being accessed by third parties unless they have a legally permissible purpose.
The FCRA provides several important rights to consumers, among them:
You must be told if information in your credit report has been used against you, such as to deny you credit.
You have the right to know what is in your credit file and to have free access to your credit report.
You have the right to ask for a credit score.
You're entitled to dispute incomplete or inaccurate information in your credit report.
Consumer reporting agencies cannot report outdated information.
No one without a permissible purpose can legally look at your credit report.
Get credit reports from each of the three credit bureaus. Check for inaccuracies. Not only might they be erroneously reporting a past credit problem, but they might reveal accounts you were unaware of that have been opened in your name. That can be a warning sign for fraud. First, contact any credit source that is showing inaccurate payment history or account information. Then, when you've cleared things up with them, contact each credit bureau that was reporting the inaccurate information. Keep written records of all these communications.
That depends on the reasons for denial, which the card issuer must disclose if you ask. If the reason is due to something you can fix, like a credit report error, reapply as soon as your report is correct. If your problems are more difficult, like a low credit score or a high debt-to-income ratio, you'll need to improve your profile or apply for a card marketed to consumers like you. Take advantage of risk-free prequalification, which doesn't generate a hard inquiry on your credit report, and provide accurate income information, so your prequalification is meaningful.
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