subject: What FICO Reason Codes Mean [print this page] What FICO Reason Codes Mean What FICO Reason Codes Mean
Credit report scores have always been the subject of much debate and controversy. Frequently, the score you've been given is not the one used by lenders and mortgagers to ascertain credit worthiness.
FICO scores are based on the variables in the credit bureau report and typically range from 500 (high risk) to 850 (low risk). If you're doing everything right and still don't find yourself with a score above 700, you could end up mystified and you're not alone.
On account of the rising demand to know why credit scores are what they are and why a consumer has been refused credit, it's now become compulsory to include reason codes along with the credit score. No more can a lender get away with a refusal to provide credit by sighting reasons like "did not match our internal requirements" or some such excuse. This stems from the equal right to receive credit.
If you're currently in a medium risk category, say about 650 points and want to increase your credit report score, take a good look at your negative reason codes. These codes are two digit numbers that come along with your credit scores.
You get four reason codes with each credit report score which means you should receive a total of 12 reason codes. These negative reason codes hint at why you may have been refused credit or how to increase your credit score. So you don't have to resort to guesswork anymore to figure out why your scores are low or why you've been refused credit.
Each FICO reason code is attached with a definition. These codes are related to the factors that affect credit scoring like payment history, length of credit history, type of credit, utilization, total amount of debt and new accounts or inquiries.
The codes on your credit report appear in order of importance. So this means that the first reason code that appears on your report is the main reason for a lower score followed by the secondary ones respectively.
These reason codes may not matter much to people with a credit report score of 800+ but for all those in the 650 to 750 it can make a huge difference. This is because the higher your credit score, the better benefits you can avail of in terms of lower interest rates and quicker processing of loans and other credit facilities.
The FICO reason codes are very often difficult to decipher and interpret since they were primarily used by mortgage companies and lenders and not really meant to be viewed by consumers. However, if you go online you'll come across a few sites that explain the reason codes in language that's easy to comprehend.
Here are some examples of FICO reason codes assigned by the 3 major credit bureaus:
01 Amount owed on accounts is too high
05 Too many accounts with balances
07 Account payment history is too new to rate
08 Too many inquiries in the last 12 months
22 Serious delinquency, derogatory public record or collection
If you're like most people and really want to evaluate how to raise your scores, try comparing your current reason codes with those present in previous credit bureau reports. Do you see the same reason codes appearing frequently? Has the order changed? Has a new reason code appeared on your recent credit report? This will give you some idea of how to raise your credit scores.
As the number of credit scoring models keep increasing so will the reason codes. This may make matters more complicated but at least now you can be aware of why your credit score is adversely affected. Besides, you'll know how to improve it to get into that 750+ exclusive category.
