What Is an Adverse Action for a Personal Loan?
If you apply for a personal loan and are denied, you could be receiving an adverse action for a personal loan. This notice can help you with your options moving forward.
What Is an Adverse Action Notice?
An adverse action for a personal loan is a note that is to inform you that you have been denied credit, insurance, employment, or another benefit based on information that is found in a credit report. The notice should also be able to specify which credit reporting agency was used and the different ways to get in touch. The note may be presented orally, in writing, or in electronic form, and must be received within a sensible amount of time.
In the notice, you will find the contact information for the credit card reporting agency. Note that the telephone number needs to be toll-free. It will include a statement that the credit card reporting agency didn’t make the decision. It will also give notice of the right to obtain a copy of the credit report and the right to dispute with the reporting agency. This notice is sent usually seven to 10 business days after a credit-based application.
There are some requirements for these notices and certain conditions when a notice needs to be provided. There are some instances when a notice is not required.
How an Adverse Action Notice Can Help You
Even though an adverse action for a personal loan can seem like a big deal, it can actually help you. You could just ignore the letter or hit delete on the email, or you can utilize it in order to get a better success next time. If the notice was oral, you can also request a written copy so that you can figure out if there is an issue.
1. Specific Reason for Being Denied
The adverse action for a personal loan will give you a specific reason for being denied. This is helpful in determining what kind of action you should take.
2. You Have a Right to a Free Credit Report
You have the right for a free credit report. Follow the instructions on the notice on how to get a free credit report. Use your free credit report to check it for yourself. Mistakes on the credit report can lower the score. It can also possibly be the reason for being denied.
3. You Have a Right to Dispute the Information
You have a right to dispute the information, which you should especially do if there is a mistake. If you dispute any errors with the credit bureau, the credit bureau will investigate the dispute. It will then clear up any errors if the investigation returns in your favor.
4. Your Credit Score if Used and the Reason Codes
An adverse action for a personal loan does tell you the reason code if your credit score was used in making the decision. This is valuable information in order to improve your credit score. It could also enhance your chances of getting accepted when you apply again.
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You will have three different options to address the reasons that are cited in an adverse action for a personal loan. You may be able to directly address some of the roadblocks and act now. For example, if the debt-to-income ratio was too high, then focus on paying down any loan balances or credit card debts before applying again. You may also just have to wait it out. An obstacle like having a short work history can be solved by waiting before applying again. It is the same with not having long enough payment history. Other reasons for being turned down will show what you need to do going forward.
Legal Citations for an Adverse Action
The Fair Credit Reporting Act produced some of the legislation that helps with the credit market. The main focus of this act is to disclose lending information to consumers who want to borrow. This includes the obligation to have an adverse action for a personal loan sent to the consumer if they are denied an application based on items in their credit report. Data that is taken and analyzed from a credit report will depend on the application. Credit applications will depend more on credit scores. However, employment applications could focus more on the recent inquiries in recent months.
The Equal Credit Opportunity Act makes it against the law for a creditor to reject a borrower money based on things such as religion, color, national origin, race, age, marital status, or sex. By using an adverse action notice, borrowers can identify if legislation has been breached in any way. If there is an adverse action, the law can describe the different solutions that can be taken. For example, the law will allow a borrower who was rejected for the loan due to negative information in the credit report to review the report at no cost.
Reasons Your Personal Loan was Rejected
There could be a few different reasons why your personal loan was rejected. There are actually seven common reasons why a personal loan can be rejected, and your adverse action for a personal loan can help you determine the reason.
Error on the Credit Report
Many lenders can catch an error on the credit report. It can sometimes be a reason for a loan being declined. A good thing to keep in mind is that many genuine errors can be corrected. You need to write an inquiry letter to the credit bureau in charge of that report. You may also be able to contact the creditor directly, which may be easier. If you contact the creditor, they will update all three of the credit bureaus at the same time to make it easier. It’s worth a try to dispute the error and there is nothing to lose.
Too Much Debt
You likely won’t get approved for a personal loan if you already have too much debt. You will have to fix the income-to-debt ratio if you want to get approved for a personal loan. This is one of the things you should focus on before even applying for a loan. Start by paying off your current debts. Then try to retrain your thinking when it comes to money, so you aren’t in the same boat again. Retraining your thinking does take some determination, planning, and discipline. You may need to reassess your financial goals, but it should be done.
Employment Is Unstable
This can be a tough one, especially if you are young and still trying to figure out your career path. Too much instability is a bad thing. The younger millennial crowd often gets a bad reputation for this. It can affect anyone who has job instability because lenders want to minimize risk.
Insufficient Income Overall
Not having enough income can be a problem, but it also doesn’t help with the income-to-debt ratio. If you want a loan, you are going to need to make enough money in order to pay it back and this is something that lenders want to see. You may need to get two jobs or build up a side hobby that can bring in some cash. By focusing on two jobs, you will have less time to spend.
Credit Score Is Too Low
Having a score under 600 may mean you are more likely to get rejected for a personal loan. Even a score below 700 could be pushing it. With some time and patience, you can get your credit score up. One of the ways to improve your credit score is by paying of your credit cards. This will also help reduce your income-to-debt ratio to further increase your chances of being approved. If you can’t pay off your entire credit card balance at once, then increase your monthly payment more often to avoid some interest and get down your debt.
Having Too Many Loans Out
If you have a lot of other loans, such as a mortgage, car loan, and student loan, and already have a personal loan, getting another one may be a red flag. By having too many loans, it tells a lender that your income is funded by borrowed money and not savings or income.
Too Many Rejected Personal Loan Applications
Every time you apply for a loan, it is noted on your credit report. Everything is updated regularly, so if you have applied for personal loans recently and have been rejected you aren’t likely going to get approved in the near future. Just give it some time in order for them to clear off the record. You can usually apply for another loan in one to two years. Don’t apply to too many places when you do apply again. Learn from the mistakes of the past to be successful in the future.
What to Do if You Are Declined for a Personal Loan
If you were denied for a personal loan, there are steps to take. Find out why you were denied. This is where the adverse action for a personal loan comes in. Learn why you were rejected so you know the steps to take going forward. Now is the time to start fixing the reasons behind your rejection. No matter the reason you were rejected, there can be ways to fix it. Some reasons may take more time and effort to solve, but with some patience and hard work it can be done.
Correct Your Credit Score
If you have already examined the report for any errors, then start looking at ways to improve your credit score. This can be by paying down any debt and stop being late on bills. Set up notifications to remind you when your bills are due and then pay more than the minimum amount on your credit cards.
Document Alternative Income Sources
Since lenders want to see a steady income, you will need to document any alternative sources of income. This can be even more important if you are self-employed. Banking statements can help. You should consider separate banks account for business use. A lender can cross check client and customer deposits with receipts and invoices. If you aren’t sending invoices or writing receipts for any cash payments, you should start doing so to make it easier to have a way to prove your income.
Fix Any Application Errors
Make sure to keep a copy of the loan application. If you are turned down, then you can see if you have entered in the information correctly or maybe left off an employer when adding in your job history. If you do find an application error, be sure to contact the lender and you may be allowed to apply again for the loan.
Other Alternatives if You are Declined for a Personal Loan
There can also be personal loan alternatives. Cash loans online are also a growing trend. If there is a specific reason for needing the money, then you may be able to utilize lenders who specialize in those kinds of loans. Some of these include medical bill loans, travel loans, or wedding loans. Personal installment loans may be guaranteed even if you have bad credit, but they may have higher interest rates. Personal lines of credit could be another option. This type of loan allows you to borrow the funds you need for the time, pay it off, and then use that money again.
Those who need money but don’t have enough time to fix their credit may also benefit from using a co-signer. Each type of loan does have its pros and cons. Those that cater to people with bad credit will usually have higher interest rates. Short term loan lenders may even require you to put up an asset in order to get the loan. Look at the contract carefully before signing so you aren’t risking everything you have.
If you have been denied for cash loans bad credit can be improved. Be sure to wait at least six months to apply again. Use this time to ensure that your application will be accepted the next time by taking the steps that will increase your credit score. Use the information you get in the adverse action for a personal loan notice in order to improve your chances.
Getting an adverse action for a personal loan notice may seem terrible, but there are ways to improve your credit score and other ways to get money. An adverse action notice can help you if you know what you are looking for. You can then use the information to your advantage so you can get approved the next time you apply. In the meantime, while you are fixing your credit score, look at other loan options to get the money you need.
Jackie is a contributor and writing professionally creating palatable, actionable content in the realm of finance. Jackie has worked the last six years in SEO as a copywriter, blog writer, social media copy and PR. She currently manages accounts such as Loanry in finance, but also works across a number of other industries, including health and beauty, lifestyle, medical, fitness, business and entertainment.