With such a frightening name, it can be alarming to receive an adverse action notice in your mail, especially if you aren’t expecting it. Under the Fair Credit Reporting Act (FCRA), potential lenders are required to provide you with an adverse action notice when they deny you credit based on information in your credit report.
If you recently applied for a new credit card, loan, or other financial product and were denied, there’s a good chance you found out the result of your application before an adverse action notice showed up in your mailbox.
According to the FTC, under the FCRA adverse action notices must include the following information:
- The name, address and phone number of the consumer reporting agency that supplied the report
- A statement that the consumer reporting agency didn’t make the adverse decision and can’t explain why the decision was made.
- Notice of your right to a free copy of your credit report from the consumer reporting agency if you ask for it within 60 days.
- Notice of your right to dispute the accuracy or completeness of any information provided by the consumer reporting agency.
- Your credit score(s), if the score(s) was used to evaluate your application for credit.
Even though it may sound scary, an adverse action notice aims to provide transparency into the application process and informs you of your rights if you think your application was incorrectly denied.
I received an adverse action notice but I didn’t apply for anything
You can use Credit Karma to check for pre-qualified personal loan offers from lenders. These lenders will typically run a soft inquiry on your credit to determine if they can make you a pre-qualified offer. Prequalification is not a formal loan approval and even if you are prequalified the lender may still deny your application or you may be approved under different terms than the estimates provided based on prequalification.
Even if you didn’t formally apply for a new credit account, you may still receive an adverse action notice if you checked for prequalified offers and the lender decides that you don’t qualify for prequalification. Applying for prequalification won’t hurt your credit so long as the lender runs a soft inquiry. Checking for pre-qualified offers on Credit Karma will not result in a hard inquiry on your credit reports.
Checking for prequalified offers is not an application for a financial product but can help you shop for financial products and see estimates from different lenders.
If you believe that someone applied for credit using your information, you should review your credit reports and check for hard inquiries or accounts you don’t recognize. If you find incorrect information on your credit reports you can dispute the inaccurate information. You can also consider locking or freezing your credit with the 3 major consumer credit bureaus if you believe you are at risk for identity theft.