What Is an Adverse Action Notice?
Use this disclosure to understand and overcome a credit denial
An adverse action notice is a written, electronic, or verbal disclosure that creditors send to you after you have been denied for a credit-based application—a credit card or loan, for example—to let you know the reasons you were denied. Understanding the information that you are owed in an adverse action notice can help you move forward after a credit denial.
When You Will Get an Adverse Action Notice
Under the Fair Credit Reporting Act, creditors, lenders, and other businesses must send you an adverse action notice after your credit application is denied, you are not extended credit in the amount or terms you wanted, or negative changes are made to credit account terms because of information in your credit report.
You can expect to receive the adverse action notice within 30 to 90 days, depending on the nature of the action:
- 30 days after you complete an application in response to adverse action against the application
- 30 days after you face an adverse action on an incomplete application
- 30 days after an adverse action on an existing account
- 90 days after you accept a counteroffer if you did not accept or use the credit that the lender offered
If you are granted credit, but on less favorable terms than a substantial number of other consumers based on information in your credit report, you will receive a separate disclosure known as a risk-based pricing notice.
Information In an Adverse Action Notice
The data in the adverse action notice will depend on the information that was used to take the action against you—namely, whether you were denied because of information in a credit report from a credit bureau or an outside source other than a credit bureau.
Denial Due to Information in a Credit Report
If data in your credit report played a role in the adverse action against you, the notice will indicate the name of the credit bureau that provided the credit report used in the decision along with the bureau's address and phone number.
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. However, those reasons will be listed in the adverse action notice, and may include, among others:
- An incomplete credit application
- Insufficient income
- Unverifiable employment
- Limited or no credit
- An insufficient number or invalid type of credit references
- Past or present delinquent accounts
- Foreclosures or repossessions
When your credit score is used in the decision, the notice must also list your credit score, the range of possible credit scores, and four factors that contributed to your credit score (five if one of the factors was the number of inquiries into the credit report). There's no cost for this credit score.
A notice of adverse action based on information in a credit report from a bureau must also communicate your right to a free copy of the credit report and how to get one from the credit bureau listed in the notice (the bureau's toll-free number will usually be given for reference). You'll have 60 days to order this credit report, so act quickly.
The adverse action notice will also include a disclosure of your right to dispute any inaccurate or incomplete information in your credit report. It's particularly important to contact the credit bureau and order your free credit report if you're surprised about the denial. You could have a case of fraud on your hands, if, for example, your account information was exposed in a data breach. Worse, you could be a victim of identity theft—for example, if someone used your personal information to open accounts in your name.
There will be an Equal Credit Opportunity Act (ECOA) notice at the end of the adverse action stating that it's illegal to deny your application based on race, religion, national origin, gender, marital status, age (as long as you're old enough to sign a contract), participation in a public assistance program, or the exercise of your Consumer Credit Protection Act rights.
Adverse Action Notice for Other Reasons
If you had a credit card or loan application denied, but because of information from an affiliate or outside rather than data from your credit report, you'll still receive an adverse action notice.
The adverse action notice will also list the specific reasons why your application was denied and the ECOA notice at the end of the disclosure. But since a credit bureau won't be involved, the notice of adverse action won't include the name or contact information of the credit bureau or allow you to receive a free credit report.
Instead, it will inform you of your right to make a written request for the nature of the outside information that was used to take the adverse action. Again, you'll have 60 days to make this request.
What to Do After You Get an Adverse Action Notice
If you were denied because of information in your credit report, order a free copy of your credit report by following the instructions listed in the notice of adverse action. Review your credit report for accuracy and dispute any errors with the credit bureau. The credit bureau will investigate your dispute, and, if valid, clear up the error.
If information from a source other than a credit report from a credit bureau was to blame for the denial, request the information regarding the outside source using the comparable contact information in the notice.
In either case, it's important to use the information in your adverse action notice to understand why your application was denied. This way, you can take the appropriate steps to improve your chances of getting approved the next time you apply.
Federal Trade Commission. "Using Consumer Reports for Credit Decisions: What to Know About Adverse Action and Risk-Based Pricing Notices." Accessed March 17, 2020.
Consumer Financial Protection Bureau. "§ 1002.9 Notifications." Accessed March 17, 2020.
Consumer Financial Protection Bureau. "§ 1022.72 General Requirements for Risk-Based Pricing Notices." Accessed March 17, 2020.
FDIC. "Appendix C to Part 1002—Sample Notification Forms." Accessed March 17, 2020.
Experian. "What Is a Fraud Alert?" Accessed March 17, 2020.
Federal Trade Commission. "Disputing Errors on Credit Reports." Accessed March 17, 2020.