What is an Adverse Action Notice?


Credit is used for many purposes: financing a home, paying for college and even securing a new job. A good score usually guarantees these items, but what happens if your credit is denied?

The Equal Credit Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA) provide consumers with certain rights when applying for credit—specifically if their application is rejected. Lenders must supply a reason for their decision—known as an Adverse Action Notice—for:

  • Denial of credit for a specific amount. Note: An Adverse Action Notice is not required if a lender provides a counter offer and you accept.
  • Termination or unfavorable action against an existing account, including denying a credit line increase
  • Denial, cancellation or increase in premium for insurance coverage
  • Denial of employment based on creditworthiness
  • Denial, cancellation or increase in charge for a government license or benefit

What Should an Adverse Action Notice Include?

According to the Federal Trade Commission, this “oral, written or electronic” information must include:

  • The name, address and phone number of the credit bureaus that supplied the report
  • A statement confirming that the credit bureau played no part in the credit decision
  • Notice of the consumer’s right to a free copy of their report during the next 60 days
  • Notice of the consumer’s right to dispute the accuracy or completeness of any information provided by the credit bureau
  • The consumer’s credit score, if a score was used

What Should I Do if I Receive an Adverse Action Notice?

Receiving an Adverse Action Notice is discouraging, especially if the reason came as a surprise. Avoid a difficult situation by taking control of your credit before you need it. Begin by taking the following steps:

  1. Order free copies of your credit reports from AnnualCreditReport.com.
  2. Review your reports carefully, highlighting inaccurate and outdated information. Look for suspicious activity that could indicate identity theft.
  3. Review your budget and emergency savings. How do your spending habits affect your ability to pay off debts? Do you rely too heavily on borrowed cash?
  4. Make a list of personal and professional goals. Where do you see yourself in five years? Do you plan to earn a degree, get married, buy a home or retire? Whatever your stage in life, credit is an essential piece of the puzzle.
  5. Contact Lexington Law to discuss your situation. We’ll help you pursue creditworthiness with professional legal services.

The bottom line: Adverse action is unfortunate, but it isn’t unavoidable. Take a proactive approach—your credit health depends on it.