How to respond to an adverse action letter

Your credit doesn't just affect your personal finances—it can also play a role in areas such as employment, renting a home, or getting insurance. If negative credit history causes you to be turned down in any of these or similar situations, you will receive notice that it was your credit history that triggered the denial. You then have the opportunity to correct any errors in your credit report.

Adverse action notice

When you apply for credit, a job, a lease, or insurance where credit is considered as part of your application, the person or company doing the credit check needs your written permission to request access to your credit report. If your application is subsequently denied, the company or person must notify you as to why you were denied and if that reason has to do with your credit report or credit score. This is done with what is known as an adverse action letter.

Under the Fair Credit Reporting Act (FCRA), the letter must include:

• Which of the three credit bureaus was used and its contact information
• Your credit score, if it was used in the decision
• One or two factors that impacted your credit score, if your credit score was used
• How you can obtain a free copy of your credit report within 60 days of the notice

Obtaining and reviewing your credit report

Once you receive an adverse action letter, you have 60 days to request a free copy of the report from the credit bureau that was used for your application. Use the contact information provided in your denial letter to make the request.

Once you receive the report, read it carefully for inaccuracies and mistakes, making sure to review your name, Social Security number, date of birth, and other personal information. Next, check every single entry on your credit report for mistakes, of which some of the most common are:

• Bankruptcies that are still listed after the 10-year limit
• Negative entries that occurred more than seven years ago
• Payments you made on time that are reported as late
• Credit limits or loan amounts that are incorrect
• Account balances that are incorrect
• Accounts reported as past due when in fact they are up to date
• Accounts that are not yours, such as those of a spouse, family member, or someone else with your same or similar name
• Accounts that were included in a bankruptcy but are still listed
• Duplicate accounts
• Inquiries, collections, or accounts you never applied for that are the result of fraud or theft

How to dispute items on your credit report

Once you've identified any inaccurate items on your credit report, you should formally dispute them with the bureau who issued the report, either by mail, by phone, or through their website. Each bureau has specific instructions on its site for where and how to report mistakes. An attorney or an adverse action letter template can also help with this process.

Write a clear and concise statement describing both the inaccuracy and the actual correct information, and provide any supporting evidence. For example, if you've paid off a loan that is still listed with a balance, send a copy of the final statement you received indicating it was paid. If a bankruptcy is still listed 12 years after its conclusion, send a copy of your dated bankruptcy judgment.

Dispute investigation

Once you've submitted your dispute, the bureau has 30 days—45 if you provide supporting evidence—to investigate and respond to your request. They will remove items if they are able to verify they are incorrect.

However, the credit bureau "investigates" simply by reaching out to the creditor or company who originally reported the information. If there's an error in the creditor's system, they will simply report the same incorrect information and the bureau will repost. In such situations, contact the creditor directly to ask them to correct the item in their system and to then report the correct information to the bureau.

Once the bureau has finished its investigation, they will notify you of the results and provide another free copy of your credit report, if it has changed. You can also ask them to send a notice of correction to anyone who requested your report within the last six months.

Check the other bureaus

Once you've resolved the issue with the first bureau, it's a good idea to repeat the process with the other two bureaus. You are entitled to receive one free credit report each year, so get your free copy from each and check them carefully. Follow the same process for reporting errors.

If you receive an adverse action letter due to your credit history, taking immediate steps may help turn the situation in your favor. Even if you don't intend to submit an application whose acceptance depends on credit, checking your credit report every year, from every single bureau, allows you to spot errors and correct them before they result in a denial or hurt your credit.