What You Can Learn From Credit Score Reason Codes - NerdWallet (2024)
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If you’ve ever been denied credit, you’ve also received a letter — known as an “adverse action notice” — explaining why the creditor rejected you.
This notice might have included lines that looked like this: “16-Lack of recent revolving account information” or “02-Level of delinquency on accounts.” And you might have wondered what the heck they meant.
These are called “reason codes” or “adverse action codes,” and a creditor must include up to four if it used your credit score in deciding not to approve your application. Some notices just list the statements.
A creditor might also decide not to approve your application based on factors such as your income or debt, which are harder to control. But understanding credit score reason codes will help you make sense of your credit score and how to make it better.
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The two major credit scoring companies are FICO and VantageScore, and each has several versions of credit scores. You'll receive different reason codes depending on which credit scoring company and score version the creditor used.
If the creditor used VantageScore for your application, you can enter a reason code you received on the VantageScore website www.ReasonCode.org. The site explains what the code means in plain language and what you can do to build your credit score. (It also has a list of every reason code you might receive.)
FICO, which is more commonly used by lenders, doesn’t have a similar resource.
NerdWallet provides a VantageScore from credit bureau TransUnion, updated weekly, as well as insights to help understand why your score changed.
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What your credit score reason code means
Reason codes fall into five major buckets, and each can offer advice about building your scores:
Delinquent accounts or derogatory public records:Bills left unpaid 30 or more days past the due date are considered delinquent. A delinquent account can appear on your credit reports and hurt your scores. Derogatory public records refer to bankruptcies, civil judgments or tax liens. The bankruptcy may have been discharged, judgment settled or tax lien paid, but if this happened recently enough, the event will still factor into your credit scores. However, all of these negative marks do fall off your report with time, allowing your score to recover.
» TIP:How long do negative marks stay on my credit report?
Lack of recent loan/account information: Reason codes with this language may specify “revolving” accounts to indicate credit cards or “installment” accounts for other types of loans. This code either means that your accounts have not been active recently or you don’t have that type of account. Credit scores benefit from having a mix of accounts — but you probably shouldn't take out loans just to bump up your score. Using the accounts you have responsibly and paying your bills on time and in full is the best way to build your score.
» TIP:3 ways to improve your credit by 100 points
Amount owed on accounts is too high: This reason code is an indicator of your debt level. If your credit card balances are high, or the amount paid down on installment loans is too low, try paying more toward your debts to help your scores.
» TIP:How to pay off debt
Length of time accounts have been established: Having new credit accounts or loans — or having a short credit history — can mean your accounts have a low average age, and that can drag down your scores. Asking a family member to add you as an authorized user to a long-established credit card account can increase the average age of your accounts. If that’s not possible, you may need to wait and apply again later.
» TIP:5 ways to establish credit
Too many accounts or inquiries: This type of reason code is straightforward — if you’ve opened a lot of accounts in a short span of time or applied for credit multiple times, it will affect your credit score, and you might be denied new credit. While you wait to apply again, research credit card offerings and study the factors that go into your score and what the creditor looks for in an application.
Reason codes tell you about the factors that affect your credit score. You can use them to work on your score. Amrita Jayakumar is a former staff writer at NerdWallet and, later, a freelance contributor to the site.
A credit score is a number that's calculated based on the information in your credit report. It helps businesses predict how likely you are to repay a loan and make the payments when they're due. You'll see lots of different scoring systems, but most lenders use the FICO score.
Credit score reason codes can tell you what factors are having the greatest impact on your credit score. Many factors can impact your FICO® Scores, including both positive and negative information in each of your credit reports from Equifax, Experian, or TransUnion.
The five Cs of credit are important because lenders use these factors to determine whether to approve you for a financial product. Lenders also use these five Cs—character, capacity, capital, collateral, and conditions—to set your loan rates and loan terms.
A derogatory mark or remark on your credit reports is a negative item, such as a late payment or foreclosure. If a derogatory mark is listed on your credit reports, it can hurt your credit scores and may affect your chances of qualifying for credit cards and loans.
Companies use credit scores to make decisions on whether to offer you a mortgage, credit card, auto loan, and other credit products, as well as for tenant screening and insurance. They are also used to determine the interest rate and credit limit you receive.
Highlights: While older models of credit scores used to go as high as 900, you can no longer achieve a 900 credit score. The highest score you can receive today is 850. Anything above 800 is considered an excellent credit score.
A reason code is a predefined set of categories or codes used to classify and track the reasons why certain events or transactions occur in a business.
Reason codes, also called score factors or adverse action codes, are numerical or word-based codes that describe the reasons why a particular credit score is not higher. For example, a code might cite a high utilization rate of available credit as the main negative influence on a particular credit score.
Visa chargeback reason code 13.6 falls under the “Consumer Disputes” category. The shorthand description is “Credit Not Processed.” This code indicates that the cardholder had reason to believe they were going to receive a refund, but no credit to their account has yet been processed.
Actions that can lower your credit score include late or missed payments, high credit utilization, too many applications for credit and more. Experian, TransUnion and Equifax now offer all U.S. consumers free weekly credit reports through AnnualCreditReport.com.
If you've ever wondered what the highest credit score you can have is, it's 850. That's at the top end of the most common FICO® and VantageScore® credit scores. And these two companies provide some of the most popular credit-scoring models in America. But do you need a perfect credit score?
The 5 C's of credit are character, capacity, capital, collateral and conditions. When you apply for a loan, mortgage or credit card, the lender will want to know you can pay back the money as agreed. Lenders will look at your creditworthiness, or how you've managed debt and whether you can take on more.
Derogatory marks on your credit are negative items such as missed payments, collections, repossession and foreclosure. Most derogatory marks stay on your credit reports for about seven years, and one type may linger for up to 10 years.
CO 24 denial code refers to "denied miscellaneous payments." It signifies that the billed service or procedure is uninsurable, non-covered, or not payable under the patient's insurance plan.
These remarks are different than alerts you may receive from your issuer, which could be about a low credit balance or a fraud alert. Derogatory remarks can significantly and negatively impact your credit score.
Your credit score is a numerical representation of your credit report that represents your creditworthiness. Scores can also be referred to as credit ratings, and sometimes as a FICO® Score, created by Fair Isaac Corporation, and typically range from 300 to 850.
Highlights: A credit score is a three-digit number designed to represent the likelihood you will pay your bills on time. There are many different types of credit scores and scoring models. Higher credit scores generally result in more favorable credit terms.
FICO Scores are calculated using many different pieces of credit data in your credit report. This data is grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).
Credit Score. - a numerical rating based on credit report information; represents a person's level of credit worthiness; heavily influences your approval for bank loans and credit cards.
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