Adverse Action Notices 101

How to Use Bad News to Raise Your Credit Score

Adverse Action Notices 101
July 24, 2018

Have you been rejected for credit? You can mope and complain about the unfairness of it all – or you can turn a negative today into a positive tomorrow by learning from the experience.

Thanks to the Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECOA), you must receive an adverse action notice that explains why a potential creditor has denied your application. If the decision was made based on information from a credit report, the adverse action notice must contain the following information:

  • The name, address, and phone number of the credit-reporting agency (CRA) that provided the information used to make the decision.
  • A statement explaining the reason for the denial of credit.
  • Your right to receive a free copy of your credit report from the CRA, and the right to dispute the information in the report.
  • If your credit score was involved in the decision to deny credit, your credit score must also be included, along with the key factors that affected your score and the range of the scoring model that was used.

Assuming that information in your credit score was part of the credit denial decision, start the redemption process by ordering a copy of your credit report and checking it for errors. You must request the credit report – it will not be sent automatically – and you must do so within sixty days. In the meantime, you can see your credit score and credit report for free within minutes by using Credit Manager.

If you discover any errors, start the resolution process with the credit bureau. Your credit score will improve if the issue is successfully resolved in your favor. The path to credit approval will take a little longer if credit was denied for a valid reason. Look over the reason in greater detail.

Do you have unacceptable levels of debt? Adjust your budget to control spending and start generating a monthly surplus to apply toward your debt. Have you missed payments in the past? Unfortunately, only time will correct this issue, but it's imperative that you make all future payments on time to blunt the effect of missed payments.

Do you use so little credit that the agencies have no history to gauge your creditworthiness? Consider starting with a secured credit card or a similar card targeted for credit building. Use this card properly and you will be able to build your credit score and qualify for a better offer in a follow-up card. If you want more credit, check out our list of secured credit card offers.

Adverse action reports are reasonably clear in describing the problem. All you have to do is take the appropriate action to raise your score based on the deficiency listed in the report.

Adverse action notices may be used for improvement in areas beyond credit. While ECOA adverse action notices only apply to credit, FCRA adverse action notices can also pertain to insurance and employment applications. The same principle applies to these areas as it does with credit – you are given the reason for denial, and that gives you an opportunity to correct the situation in the future.

When faced with an adverse action notice, why not make the best of a bad situation? Take a deep breath, get past the feeling of rejection, and turn that energy into the focus and determination that will help you get a positive outcome on your next credit application.

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