What Is an Adverse Action Notice?
An adverse action notice is a letter sent about 7 to 10 business days after you've had a credit-based application — credit, loan, insurance, employment, etc. — denied.
Denied for Information on Your Credit Report
If you had an application denied because of information in your credit report, creditors, lenders, and other businesses are required to send what's known as an adverse action notice letting you know the reason or reasons you were denied. The notice will tell you which credit bureau provided the credit report used in the decision and provide the bureau's address and phone number. The adverse action notice can be given orally, by phone, or in writing and must be sent in a "reasonable" amount of time after the decision has been made.
When your credit score is used in the decision, the notice must also list your credit score and include up to two factors that contributed to your credit score. There's no cost for this credit score.
The credit-based adverse action notice must tell you how you can get a free copy of your credit report from the credit bureau listed in the notice. You'll have 60 days to order this credit report, so act quickly. The notice will also state that the credit bureau wasn't involved in the decision and that the bureau can't tell you why your application was denied. (Those reasons will be listed in the notice.) Finally, the adverse action notice will include a disclosure of your right to dispute inaccurate or incomplete credit report information.
Contact the credit bureau and order your free credit report, especially if you're surprised about being denied. You could have cases of fraud or identity theft that needs to be cleared up.
Denied for Other Reasons
If you had a credit card or loan application denied, but not because of information on your credit report, you'll still receive an adverse action notice.
This adverse action notice will also list the specific reason(s) your application was denied, but won't include the name of a credit bureau or allow you to receive a free credit report. There will be an Equal Credit Opportunity Act (ECOA) notice at the end of this adverse action stating it's illegal to deny your application based on race, color, religion, national origin, sex, marital status, age (as long as you're old enough to sign a contract), participation in public assistance program, or exercising your Consumer Credit Protection Act rights.
What Can You Do Next?
Order the free copy of your credit report by following the instructions listed in the adverse action letter. Review your credit report for accuracy and dispute any errors with the credit bureau. The credit bureau will investigate your dispute and clear up the error if the investigation returns in your favor.
Use the information in your adverse action notice to understand why your application was denied. This lets you know what action you can take to improve your chances of getting approved the next time you apply.