Credit score reason codes
 When a lender requests a
credit
score, that score is computed by the credit reporting agency (Equifax,
Experian, or Trans
Union) based on data in your credit file, and the "secret formula"
of the scoring model.
The score is shown on the credit report, along with one or more reason codes,
ordered by their importance in arriving at the score. The reason codes may just
be numbers that can be looked-up on a chart, or they may be numbers accompanied
by the corresponding reason descriptions. Here's an example of a Beacon
score of 711, with reason codes 14, 8, 9, and 30:
BEACON Score: 00711 00014/00008/00009/00030
Time accounts have been established
Number of inquiries within last 12 months
Number of accounts opened in last 12 months
Time since most recent account opening
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As you can see, the descriptions with a typical score don't tell you much as a
consumer. They are designed for the lender. Click here to get
your credit report and score
now, with a detailed explanation designed to help you as a consumer.
How Lenders Use the Reason Codes
In theory, the reason codes should call attention to areas on your credit
report that should be studied further. In practice, the reason codes often are
used just to make it easy for the lender to generate a letter of declination,
complete with reasons, should you happen to fall below the lender's predefined
cutoff.
Interestingly, the same lender might see the same four reason descriptions
for a consumer having a much lower or higher score. The reason
descriptions often merely provide hints as to what might be improved to get a
higher score.
No Adverse Factors
One possible reason message is "No adverse factors" - but it
is not often seen. That's because those who develop the scoring models don't
know where the lender will place the cutoff points. A lender could have an
extremely high standard, but reasons are necessary when an application is
declined.
Reasons and the ECOA
According to the Equal Credit Opportunity Act, when declining credit, a
lender can't just tell you "Your score wasn't high enough", or
"You didn't meet our internal standards." A statement of
specific reasons must be provided, or you must be advised of your right to
demand specific reasons. Credit scoring helps the lender provide reasons.
Reason Messages and What They Mean
| Reason Message |
Explanation |
Not all accounts paid as agreed.
Recent delinquency. |
You had some late payments or
defaults.
Recent late payments weigh more heavily. |
Lack of recent information on auto
loans or lack of auto loans.
Lack of recent information on revolving accounts.
Lack of recent information on bank or national accounts.
Lack of recent installment loan information.
No recent non-mortgage balances |
Scores can be computed differently
depending on the kind of credit you are seeking. For example, if you seek
an auto loan, a score model that giving special weight to how you've
handled auto loans might be used. Messages often indicate that the scoring
model is not seeing recent activity in the category being evaluated.
|
Insufficient recent payment history.
Accounts not open long enough.
Loan balance too high, compared to original loan amount. |
Credit scoring requires current
information, as well as a history. New loans may not be help your
score, because there is not enough history to see your repayment track
record. |
| Number of accounts in total |
Too few or too many. It's probably
obvious which applies to you. |
| Too close to credit limit on
revolving accounts. |
Department stores often view this as
an opportunity to increase your limit. |
Recent legal filing or collection.
Derogatory public records. |
Credit reporting agencies look at
court house records - and this can affect your score. Transfer to a
collection agency or collection account is also considered very
derogatory. |
| Number of finance company accounts
compared to length of finance history |
Taking out multiple loans in a short
period of time is a sign of trouble. |
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