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By Ben Luthi / NerdWallet
June 2, 2015

If you’ve been denied credit recently, an adverse action notice may be coming your way.

Don’t let the name scare you. The notice is designed to give you the information you need to improve your credit for the next time you apply.

What is an adverse action notice?

Lenders are required to send you an adverse action notice if they deny you credit based on information found in your credit report. The notice typically includes the following information:

  • The specific reasons why your application was denied, or the contact information of the person who can provide that information to you.
  • The credit bureau’s noninvolvement in the decision and inability to provide you information as to why your application was denied.
  • Your right to request a free copy of your credit report within 60 days of receiving the notice.
  • Your right to dispute the accuracy of any information found in your credit report.
  • How to request your credit report, including the name, address and telephone number for each of the three major credit reporting bureaus — Experian, Equifax and TransUnion.
  • Your credit score, if your score was a factor in the lender’s denial.

According to regulation, the adverse action notice may be in the form of a letter, an electronic statement or a phone call. Though lenders aren’t required to send the notice within a specific timeframe, they must do so in a reasonable amount of time.

What to do if you get one

If you receive an adverse action notice, don’t ignore it. Rather, use it to be proactive about repairing your credit:

Note the reasons why you were denied.

It may say something like “delinquent past or present credit obligations with others” or “limited credit experience.” Whatever the reason, create a plan to improve or establish whatever credit behavior that remedies the situation.

Order a copy of your credit report.

Use the credit bureau contact information provided to request a free copy of your credit report. Once you receive it, review it to make sure there is no inaccurate or incomplete data that may have caused you to be denied. If you do find anything that’s off, contact the credit bureau to dispute the error.

Note that you don’t have to wait until you’re denied credit to view your credit report. You can order a free copy from each of the three major credit bureaus once a year through AnnualCreditReport.com

Work to improve your overall credit.

Though it’s important to focus on the specific reasons why you were denied in the first place, it’s helpful to establish other good habits that can boost your overall credit over time. Plan to pay your bills on time, keep your credit card balances low and apply for credit only when you need it.

Consider a secured credit card.

Designed specifically for people with bad or no credit history, a secured credit card can help you build or repair your credit. A secured credit card issuer requires a collateral deposit that’s usually equal to the amount of your line of credit. You can then use the card and make payments like you would with a conventional credit card to demonstrate a reliable payment history.

When you apply again

After you’ve taken steps to improve your credit history over time, you may be in a position to apply again. Before you do, consider the loan or credit card carefully. Ask yourself if you really need it. If you do, be sure to continue practicing the good credit behaviors you’ve developed to maintain the progress you’ve made.

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