Adverse Action

An adverse action is a negative action reported to an individual or business which generally pertains to the denial of credit, employment, insurance or other benefits. An adverse action notice can be issued by a lender, business or government based on certain information found in credit reports or public records.

Adverse action refers to a negative decision that can deny certain benefits to a borrower also causing negative marks on their credit profile. Adverse action notices are generated following a hard inquiry that results in a denial of credit, employment, insurance or other benefits based on information obtained from a borrower’s credit report. Adverse actions may be denoted on a borrower’s credit report and will be specifically noted if they are the result of a credit application decision which can harm a borrower’s future credit score. Adverse actions are defined and discussed in various laws passed by Congress, including the Equal Credit Opportunity Act and the Fair Credit Reporting Act.

The Fair Credit Reporting Act is a primary act that legislates procedures in the credit market. A key area of focus for this act is the disclosure of lending information to borrowers. This includes the requirement of entities to generate an adverse action notice sent to a borrower if they are adversely denied an application based on information in their credit report. Generally criteria analyzed from a credit report will vary by the type of application with credit applications focusing on credit scores while employment applications may focus on the number of recent inquiries or level of credit obtained in recent months.

The Equal Credit Opportunity Act makes it illegal for any creditor to deny a borrower credit based on variables such as race, color, religion, national origin, sex, marital status or age. Adverse action notices can help a borrower to identify if Equal Credit Opportunity Act legislation has been breached n a benefit decision.

In the event of an adverse action, applicable law also describes the various remedies that may be taken. For example, if a consumer is turned down for a loan because of negative information contained in a credit report, he or she can review the report at no cost.

Adverse action notices are sent to an individual within 7 to 10 business days after an adverse action has been determined. This is also approximately the time for an adverse action to be noted on a borrower’s credit report.

Individuals can expect to see certain adverse actions pertaining to credit inquires on their credit report. Generally any adverse action pertaining to credit may be itemized on a borrower’s credit report which can further harm their credit score and credit profile in the future.