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- Creditors send adverse action notices when they reject your loan application.
- Adverse action notices include the reason for the rejection and which credit bureau provided your credit report.
- An unexpected adverse action may indicate inaccurate information on your credit report, which you may dispute.
If you’ve been denied credit, you’re not alone. According to latest data published by the Federal Reserve Bank of New York, as of October 2023, 21.1% of loan applicants had been rejected over the past year.
When creditors reject your application, they cannot leave you in the dark about their decision. Federal law requires creditors to provide detailed disclosures, also called adverse action notices. Learn more about what side effect notifications include and what steps to take if you receive them in the mail.
What is an adverse reaction notification?
A Notice of Adverse Action in Finance is a document that explains why a creditor rejected your application for financing based on your credit history. This notice is required under the Fair Credit Reporting Act (FCRA) when a lender uses a consumer report to make lending decisions. Notifications of side effects are usually delivered by mail within seven to ten business days of the denial.
As defined by the Equal Credit Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA), side effects may include:
- Rejection of a loan application
- Refusal to grant a loan in the requested amount or on the requested terms
- Negative change in account terms following an unfavorable review of a consumer’s account
What does an adverse reaction notification include?
The Fair Credit Reporting Act requires creditors to include the following information in an adverse action notice, regardless of whether the notice is provided orally, in writing, or electronically:
- The name, address and telephone number of the credit reporting agency that provided the report used to determine the adverse action
- Reasons for refusal
- A statement that explains that the credit reporting agency has not made an adverse decision and does not explain why such a decision was made
- Notice of consumer’s right to a free copy of report from credit reporting agency if requested within 60 days
- Notice of a consumer’s right to dispute the accuracy of information provided by a credit reporting agency
- Assessment of the consumer’s creditworthiness, if used in making the decision
Why did I receive an adverse reaction notification?
A creditor may reject your loan application for many reasons, but the most common include:
How to respond to an adverse reaction notification
You do not have to respond to the Adverse Action Notice because it is simply a document stating that you have been denied credit. However, if you disagree with the decision and want to dispute it, you can contact the credit reporting agency that provided the information.
Here’s a quick description of what you can do if you receive a side effect notification:
Assess the situation. Until you fully understand why you were denied credit, you may be rejected again if you apply again. So, before you do anything else, read the adverse action notice to assess your credit situation. Regardless of how the creditor provides notice, he or she must provide reasons for the adverse action.
Check your credit report. The Adverse Action Notice only gives you a general idea of why you were denied credit. To see the full picture and know where you stand when it comes to your credit situation, you can request a free copy of your credit report from the same bureau your creditor used.
You can also request a free credit report from all three major credit bureaus once a week. The adverse action notice will also include contact information for the credit reporting agency that provided your credit file.
File a dispute. Once you receive a copy of your free credit report, review it carefully to see if there are any inaccuracies that could be responsible for the unwanted activity. You can usually report a dispute to the credit reporting agency online, by phone or by mail to have the information corrected.
You can also use a credit repair service that will refer credit disputes to the credit bureaus on your behalf. You can find our guide to the best credit repair companies here.
Take steps to improve your credit score. If your loan application has been rejected for a valid reason, take steps to improve your credit score before submitting another application. You can work on your credit situation by paying your bills on time, lowering your credit utilization rate, paying down debt, and avoiding unnecessary credit applications. It’s worth taking the time to look into credit building loans. You can find our guide to the best loans for building credit here.
If there is information on your credit report that lowers your credit score, such as a crime or a few hard inquiries, you may have to wait until it ages on your credit report.
Another often overlooked method of improving your credit score is a goodwill adjustment, which involves reaching out to your creditors and requesting that a negative rating be removed due to a one-time oversight or hardship. “Even though it’s not guaranteed, many creditors may consider a goodwill adjustment, especially if you have an overall positive payment history,” he said. John Browningfinancial advisor and founder of Guardian Rock Wealth.
Dispute a denial: The credit card provider that declined you may have a process for disputing your denial. This works best if you have additional information to add to your application, such as a source of income not listed.
If you believe your credit application has been declined for reasons beyond your financial information, such as race, gender identity or national origin, you can also report credit discrimination to Consumer Financial Protection Bureau Or FTC.
Adverse Employment Action Notices
An adverse employment action is anything that may negatively impact your employment situation but is typically used during the recruitment process. If an employer decides to take adverse action against you, federal law requires that it provide you with a notice of adverse action by mail, electronically, or verbally to let you know that you will not be hired because of the negative results of your background check.
Here’s an example of what adverse employment actions might look like: MetaApple Inc. informs its candidate, Jessica, that she will not be hired as a software engineer after a background check shows that she has been charged with drug-related crimes and has defaulted on multiple credit card payments.
Frequently asked questions – notification of side effects.
Employers typically send a pre-adverse action notice to inform a job applicant that a negative background check result may result in adverse action. The Pre-Adverse Action Notice gives the applicant the opportunity to review the information contained in the consumer report, identify any inaccuracies and correct any issues before the adverse action is officially taken.
With the pre-adverse action notice, the employer will typically provide a copy of the background check and give you time to review the documents submitted. If you discover any inaccuracies, gather any evidence that will help your dispute. Once you have gathered the explanatory information necessary to resolve the negative findings, contact your employer for instructions on how to submit the information.
No, an adverse reaction notification will not negatively impact your credit score or appear on your credit report. However, if a creditor makes a hard inquiry when determining whether you qualify for a loan, your score may temporarily drop a few points.