Laws for Credit Denial Letters

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Federal law dictates that creditors who deny credit must send formal letters of explanation. These letters can be surprising, if unexpected. The law provides you with a means to determine which information led to the denial. Armed with this information, you can begin to take steps to improve your credit and avoid a future denial letter.

Notification of Denial

The Fair Credit Reporting Act requires creditors to notify you in writing if an application for credit is denied. This notification must be mailed within 30 days of the decision. A notification must include the reasons the creditor decided to reject your application -- including insufficient credit history or a high balance on revolving credit accounts. If the creditor does not include the reasons for your denial, a customer service phone number or website address must be made available.

Credit Discrimination

The Equal Opportunity Credit Act makes it illegal for a creditor to discriminate against you based on your race, gender, ethnicity, religion, age, marital status or receipt of public assistance. A creditor who discriminates against you based on any of this criteria can be liable for civil damages of up to $10,000 per incident. A creditor may ask for identifying information on a credit application, but this request is for informational purposes only and applicants do not have to provide it.

Contesting Credit Denial

Federal law allows you to contest a creditor's decision if you believe it was made based on incorrect information on your credit report. To contest the decision, contact the credit reporting bureau and present the information you believe is incorrect. The Fair Credit Reporting Act requires the credit bureau to investigate your claim within 30 days of receiving your notice. If the bureau finds the information to be invalid, it must immediately remove the notation from your credit report and adjust your credit score.

Reapplying For Credit

A creditor is not required by law to reconsider your application for credit once your credit score is restored and incorrect information is removed from your credit report. This does not stop you from reapplying for credit with the same creditor or applying for a similar line of credit with another financial institution. Make sure to monitor your credit report every 12 months to ensure that the incorrect information does not reappear on any report issued by any of the three major credit reporting bureaus. The Fair Credit Reporting Act enables you to obtain a free copy of your combined credit report once every 12 calendar months.

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