Adverse Action Notice is a very unpleasant phenomenon, when a creditor refuses or raises interest rates, and maybe it cuts down a credit limit or closes your credit card altogether. Lenders have the right to do so if your credit behavior does not satisfy certain conditions that the lender sets before you. The lender can review your credit report or change its own borrower policy.
You can get Adverse Action Notice when you apply for a credit card, but your credit rating does not meet the standards of the issuer, then you will most likely be denied for receiving a credit card.
The same can be expected if the issuer sees that your credit rating has dropped. In addition, he may decide to reduce your credit limit or increase interest rates. Your credit card issuer will constantly monitor your credit rating to meet its standards in order to reduce risks to yourself.
There are two federal laws that regulate adverse actions
The first law is the FCRA, which covers consumer transactions and requires lenders to notify what was the basis of the adverse action. The second law – ECOA covers both businesses and consumers, requiring lenders to describe the specific reasons for the adverse effect.
FCRA covers loan applications, along with other types of applications, including credit cards and job applications. ECOA covers not only loan applications, but also an increase in the credit limit. If you are interested, read more about the content of these laws.
What is Adverse Action Notice and what it can include?
For an explanation and justification of the reasons for the Adverse Action, creditors and credit card issuers must send written notice of reasons and refusal letters. When the cause of the negative action is your credit report, the lender is obliged to provide you with a notice containing information about your credit. Such notification can be delivered in any form, but most Adverse Action Notice is sent by mail.
By law ECOA, the lender has 30 days to send you Adverse Action Notice after taking certain measures. The other is when you apply for a loan, and the lender provides a counter offer that you are not ready to accept. In this case, the lender or credit card issuer will have 90 days to send you Adverse Action Notice.
All Adverse Action Notice, if based on a credit check, must contain the specific reasons for the Adverse Action, the credit score that was at the time of application, and it should explain what key factors affected your credit rating. In addition, the Adverse Action Notice must also contain information about the credit bureau, from which this credit score data was received, as well as its contact information.
You also have the right to receive a free credit report and dispute the data it contains. The contact information should help you contact the credit bureau to request a free copy of the credit report used by the lender.
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When a credit score is the basis for a creditor’s decision on an Adverse Action, this credit score should be disclosed in Adverse Action Notice. In the event that a creditor takes a negative action against you that is not based on checking your creditworthiness, then you usually still get Adverse Action Notice. Such a situation is possible if you were not a good enough client for this lender and, for example, allowed for permanent delays in payment.
There are three main types of adverse actions, such as denial of credit, negative changes in account conditions and unfavorable approval.
Adverse actions can be taken against people applying for a new loan or existing account holders. Many consumers are surprised that their credit card issuers will continue to keep track of their credit reports.
In fact, this is a common occurrence called an “account management”. Credit card issuers must always understand that their funds are not in a precarious position, and current customers retain their creditworthiness.
The lender can go to the Adverse Action even if you have a problem situation with another lender. This may affect your credit rating and the issuer will take measures to reduce its risks, for example, by increasing the interest rate or reducing the credit limit. Therefore it is worth keeping in order all the credit cards you have.
Adverse Action Notice can come to you not only because you did something wrong. Sometimes the internal policy of the issuer changes, which is reflected in changes in the terms of your account. These changes can be caused by a variety of reasons, such as a reaction to current and expected changes in the economy.
A denial of credit can very often be expected for those who apply for it. People understand that in this case, creditors always rely more on credit reports, which for many are far from ideal. On the other hand, each lender has its own minimum qualification requirements and it is quite possible that your credit score will be enough to get credit approval. If your credit score is not sufficient, you will receive an Adverse Action Notice explaining the reasons for the refusal.
The next option Adverse Action is Unfavorable approval, which, in fact, is a counter offer from the lender when your credit score is not enough to qualify for certain conditions.
You can accept or reject such a counter offer from the lender, and if you reject it, the creditor will have to send you Adverse Action Notice.
Interest rate increase
One of the very unpleasant Adverse Action is the interest rate increase. When you are registering a credit card accepted and counted on some conditions, and now they have changed for the worse. The practice of raising interest rates is accompanied by many restrictions and requirements, so when the issuer raises your interest rates, it will have to notify you 45 days before this happens. You can refuse to use this credit card, but at the same time you will have to pay off all balances and close the account.
In the event that the card issuer raises your interest rates due to a decrease in your credit, then it must check your account after six months to see if the conditions of your credit improved. If the card account was opened less than a year ago, then issuers cannot raise the interest rate, except in cases of a 60-day delay in payment or the grace period ends. Also, the lender may impose a penalty if you are late with the payment or your credit rating has dropped dramatically.
At the same time, according to the Law CARD 2009 does not allow lenders to raise interest rates on purchases that have already been made, but only on future purchases. However, with large delinquencies and large amounts, the lender has the right to raise interest rates retroactively to balances on this particular account.
There are situations when interest rates may not increase as a result of negative actions, but in such cases, for example, as a rise in the basic rate, since interest rates are variable, or the period of the advertising rate ends. In these cases, the issuer does not need to provide Adverse Action Notice for 45 days.
Credit limit reduction
A credit limit reduction is also one of the Adverse Action. Your credit limit is set by your credit card issuer. Higher credit standing usually implies greater credit limits for you. However, with increasing risks for any reason, the lender may reduce your credit limit.
Credit limit increase waiver
If you use your credit card correctly, do not allow a high balance and overdue payments, then you can often expect to increase your credit limit as a result of a very simple procedure. However, issuers may refuse to increase your credit limit in some cases when, for example, you already have too much total debt, your account is too new, or your income may not be enough to pay the increased debt. Also, factors such as your credit rating, payment problems, or high balance certainly influence this.
Suspension of an account usually occurs when the lender considers you a bad customer, when you, say, constantly make overdue payments. In this case, it can suspend your account.
Your account will still be open and it will not affect your credit rating, but you will not be able to withdraw funds from your account. When you try to pay by this card, you will be denied. If the issuer considers that you can not return the debt, then it can suspend your account. If you want to return it to the action, then you will have to fulfill the requirements of the lender, which in each particular case will be unique, depending on your situation.
Your credit card account can also be suspended at your request in case of loss or theft of a credit card.
The closure of the account by the issuer is a revocation of the account and usually happens forever. The card issuer may close your account if you cannot repay your debts or violate the terms of the agreement in any other way.
Closing an account can have serious consequences for your credit, especially if it is your fault and abuse. A closed account due to the transfer of debt collectors for the next 7 years will negatively affect your credit. If your account has been closed for inactivity, it will most likely have a positive effect on your credit report for the next 10 years.
Credit card issuers in general do not need specific reasons for closing your credit card accounts. Lenders are not required to send you Adverse Action Notice if they do not use your credit as part of the solution.
What to do after receiving Adverse Action Notice?
As you can see from the above, the causes of Adverse Action Notice can be many factors that are not always negative for you personally and are not always your fault. You can use this fact as one of the possibilities to check your credit.
Carefully consider the causes of Adverse Action Notice and draw conclusions about how the situation can be corrected. Look at the key factors of a credit rating and they will tell you about what is currently affecting your credit. Maybe you have too many debts, or your credit profile is too young, then you can pay off at least most of the debts, or just continue to use your credit card carefully.
Check your credit report for errors, they may give you a credit score, and most of the errors in credit reports can be corrected or disputed.
Adverse Action Notice can also be the result of your irresponsible behavior with credit cards, so change your attitude and take responsibility for your obligations. You should be able to improve your credit by solving the problems that will be revealed in Adverse Action Notice. After making changes over time, you can again apply for a loan or increase the credit limit.
In any case, whatever the reasons for Adverse Action Notice, this does not mean that your credit history is over. Most often, they simply reveal weaknesses and show ways to improve your credit.