What do reason codes mean?

Have you received a notice with your credit score and wondered what those alphanumeric codes on the notice mean? Those are reason codes, and they usually correspond with a reason code description. Here are a few examples:

32: Balances on bankcard or revolving accounts too high compared to credit limits
16: The total of all balances on your open accounts is too high
85: You have too many inquiries on your credit report
13: Your most recently opened account is too new

When one of the national credit reporting companies (CRCs) — Equifax, Experian or TransUnion — provides a credit score, four or five of these codes are usually generated and provided to you. Reason codes are also found on a variety of legally required disclosure notices issued by lenders when they check your credit as part of a loan application.

Credit scores help lenders and other organizations decide whether to extend credit to you and at what terms. The credit scoring models calculate your credit score by applying a mathematical formula to the information contained in your credit files at the three national CRCs. A high score may mean you have easier access to the credit you seek, possibly at lower rates. If you have a credit score lower than you’d like, the best way to go about improving it is to focus on managing your credit better.

What can reason codes tell you?

Reason codes tell you the main reasons why you did not receive a perfect score from the particular credit score model that was used to generate your score. Because each credit score model uses its own formula to calculate your score, the reasons why you didn’t get a perfect score will vary from model to model.

Because reason codes are required by law, even people with really high scores will receive up to the top four or five reasons why their scores are not perfect.

The reason codes you receive are always listed in order of magnitude about why your credit score was not the highest score on the scale used by the credit scoring model. So the first code given is the reason why you lost the most points, the second code is the reason you lost additional points but fewer points than the first reason, and so on.

The following are some commonly asked questions about reason codes:

When will I receive reason codes?

You will likely encounter reason codes each time you receive your credit score. You can obtain your credit score from one of the three national credit reporting companies, Equifax, Experian and TransUnion, or through third-party websites.

You may also receive your credit score when your lender checks your credit as part of a loan application. In 2011, the Federal Reserve and the Federal Trade Commission issued regulations that require all lenders, who either deny a credit application or approve an application but charge interest that is higher than the best available terms, to send a disclosure notice to the applicant that includes the credit score used to reach that decision. The notice will also include the range of possible scores, the date the score was created, the name or entity that provided the credit score, and “major factors that impacted the score.” Those “major factors” are the reason codes and the descriptions.

This information is also likely to be included in the credit score you purchase either from one of the three national CRCs or through a third-party reseller.

How many reason codes will I receive?

Up to four reason codes are typically provided. In fact, the number of reason codes you receive is covered by law. The current requirement states that a maximum of four factors should be delivered—unless the number of credit inquiries is also a factor in the score drop and is not already reflected in the top four reasons, in which case, five factors will be given to you.

Which reason code has the greatest impact?

Reason codes appear in the order of greatest impact. The first or “top” reason code has the most impact on your credit score. The remaining codes continue in order of less and less impact.

What if I already have a very high credit score?

It’s certainly possible that you are handling your credit accounts perfectly and that you’ve received reason code information only due to regulations. If your score is very high and you receive the best terms for credit, read the reason codes but understand that you may not need to make changes to the way you handle your credit accounts.

Why are my reason code descriptions so similar?

One account could generate multiple reason codes, and the descriptions may appear similar. This is because the credit model is taking into consideration multiple characteristics from that account. A missed payment could generate multiple reason codes.

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