Adverse Action Notice: What it is and What to Do Next

Summary
Learn what an adverse action notice is, why you might receive one and what alternative options may be available to you. Understand your rights and next steps.
In this article:
Applying for a loan or credit card can be a key step in building your credit history or working toward your financial goals, but not every application gets approved. If a lender declines your request or offers less favorable terms than expected, you may receive an adverse action notice (AAN). While it might seem discouraging, this notice isn’t just a rejection — it’s a chance to understand what led to the decision and what you can do to improve your chances next time.
Adverse action notices apply in many areas, like job applications and insurance decisions, but here, we’ll focus on how they relate to credit applications. Let’s break down what an AAN includes and the steps you can take if you receive one.
What is an adverse action notice?
An adverse action letter is typically issued by a lender or other decision-making party explaining why they declined a credit application or, in some cases, when you reject a credit offer. The notice is a formal communication required by law.1
Once a lender has received all the necessary information to make a decision and the application is considered complete, they have 30 days to inform the applicant of the decision.2 The notice doesn’t necessarily have to come in writing — the lender can also relay it orally or electronically.
As we mentioned above, an adverse action notice is not limited to credit applications — it could also apply to insurance, employment and other situations where an application is assessed based on creditworthiness.1
What’s included in an adverse action notice?
Details in an Adverse Action Notice may change depending on the situation and the law that applies. However, most notices include:
The action taken by the creditor: The notice will specify whether your application was declined or if you were offered different terms than you expected.
The reason for the decision: This explains why your application was declined or why you were given different terms than expected.
Crediting reporting agency details: If the decision was based on your credit report, the notice will include the name and contact information of the credit bureau that provided it.
Your right to a free credit report: You can get instructions on how to request a free copy of the report used in the decision
Your right to fix mistakes: If you find incorrect information in your credit report, you have the right to dispute it with the credit bureau.
Other information: If the decision was based on factors like your credit history or income, the notice may include information about additional rights you may have.
The information in an adverse action notice is meant to keep the creditor’s decision transparent and help you address any issues in your credit profile.
Reasons you may receive an adverse action notice
You will get an adverse action notice if you're declined for a loan. Reasons for being declined for a loan may include, but are not limited to:
Less-than-perfect credit: Your credit score may not meet the lender’s minimum requirements to get approved for a loan or line of credit.
Negative credit history: Late payments, defaults or bankruptcies may have influenced the decision.
Debt-to-income (DTI) ratio: Your DTI is the total of your monthly debt payments divided by your monthly income before taxes. Lenders use this number to assess if you can manage the monthly payments for the loan or line of credit you apply for. Lenders may perceive you as a higher risk if your debts are too high compared to your income.
Not enough income to qualify: Lenders need to see that you can comfortably repay the loan you applied for. If your income doesn’t meet the lender’s requirements, it could impact their decision.
Incomplete or inaccurate application: Missing information or errors on your application may also lead to it being declined. Mistakes can be as simple as misspelling your name or accidentally entering the wrong address.
Do you have to respond to an adverse action notice?
You are not required to respond to an adverse action letter. If you have any questions about the notice you received, follow the contact instructions on the notice.
What should you do next?
Receiving an adverse action notice isn’t the end of the road. Here’s what you could do to move forward:
Review the reason for non-approval
Carefully read the notice and identify the specific reasons for the adverse action. Understanding these reasons could help you take steps to improve your chances of approval in the future, like paying down your debt and paying your bills on time, every time.
Understand your credit score
Request a free copy of your credit report from the agency listed in the notice and review it for any negative information or areas for improvement. Even if you don’t receive an adverse action notice, you can request a free copy of your credit report once every 12 months from annualcreditreport.com, so you’re always in the know.
Dispute inaccurate information
If you find errors in your credit report, like an account you don’t recognize or a missed payment you actually made, try to dispute them as quickly as possible. Credit bureaus are required to investigate and correct inaccuracies. A ‘clean’ credit report may improve your chances the next time you apply for credit.
Wait to re-apply
Applying for a new loan or line of credit too soon after being declined may hurt your credit score. When you apply for a loan or credit card, the lender initiates a hard inquiry, which could stay on your credit report for up to 2 years and negatively affect your credit score.3
So, it’s important to take time to address the issues brought up in the notice before submitting another application.
Explore alternative options
Receiving an adverse action notice may seem discouraging, but it’s also an opportunity to understand and improve your financial standing. If traditional loans aren’t a fit, you may want to think about taking other paths, including:
Secured credit cards
A secured credit card is a helpful financial tool if you're looking to build or rebuild your credit profile. Unlike a traditional credit card, a secured card requires a cash deposit, which becomes your credit limit.4 This deposit is meant to minimize the lender's risk, potentially giving you a better chance of approval.
If you use your secured credit card responsibly, you could see your credit score start to improve over time, giving you a stepping stone toward getting unsecured credit in the future.
Secured personal loans
Secured personal loans are backed by something valuable you own, known as collateral. Common types of assets used as collateral include your car, truck, motorcycle or home. If you fail to repay, the lender could repossess and sell the collateral to help cover the debt. These loans may be helpful for those with less-than-perfect credit and could offer better odds of approval, lower rates or larger loan amounts than unsecured loans.
You can check for prequalified offers from OneMain to see where you stand, without impacting your credit score.
Loans from friends and family
A family loan is a financial agreement between relatives or friends, without involving a bank, credit union, or licensed lender. It could be used for any purpose, like paying off debt or making a big purchase. However, if misunderstandings develop, they could strain both the loan terms and family relationships. That’s why it’s important to treat these loans with the same seriousness as you would a bank loan.
A downside to this option is that borrowing from friends or family won’t help improve your credit profile.
An adverse action notice isn’t the end of the road
An adverse action notice can be a beneficial tool to help you gain insights into your financial standing. By focusing on steps to strengthen your credit profile, you may improve your chances of approval in the future. Remember, what may seem like a challenge could be an opportunity to learn and grow, bringing you closer to achieving your money goals.
Sources
2 https://www.consumerfinance.gov/rules-policy/regulations/1002/interp-9/
4 https://www.experian.com/blogs/ask-experian/how-to-get-a-secured-credit-card/
This article is for general education and informational purposes, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any purpose and is not intended to be and does not constitute financial, legal, tax, or any other advice. Parties (other than sponsored partners of OneMain Financial (OMF)) referenced in the article are not sponsors of, do not endorse, and are not otherwise affiliated with OMF.