Improving Your Credit Score: What are Reason Codes?

If you are interested in improving your credit score, you will want to have a clear understanding of what is included in your credit report. To this end, you will want to understand the different reason codes that are utilized in your credit report. By understanding the reason codes associated with entries on your credit report, you will be in a better position to deal with entries in your credit report and ultimately to improve your credit score.

A Definition of Reason Codes

As you go about reviewing your credit report, you will find so-called reason codes within that report. You may be wondering what these reason codes are all about. Reason codes are items that are used by the major credit reporting agencies to indicate the underlying facts surrounding the placement of a certain item on a credit report. As an example, if you have late payments, these late payments will be assigned an appropriate reason code. Similarly, other factors will be assigned reason codes as well.

Positive information contained in a credit report a will also be assigned a reason code. For example, an account in good standing will be assigned an appropriate reason code.

Reason Codes and Incorrect Information on Your Credit Report

You need to keep in mind that reason scores are very important because they are a necessary tool in determining whether there is incorrect information within your credit report. They can be a vital tool in the task of removing erroneous information from your credit report.

In this day and age, the majority of credit reports actually do contain incorrect, erroneous information. Through reason codes, you can best identify this incorrect negative information that may be having a negative effect on your credit score (as will be discussed more fully in a moment).

Reason Codes and Your Credit Score

As was mentioned, reason codes are very useful in helping you in gaining a clearer picture of why your credit score is at the level it is at the present time. Reason codes provide you with clear guidance and information about the status of your credit and of your finances more generally -- in a very easy to understand fashion (once you understand which code represents which factor). Reason codes provide an easy and reliable system through which you can classify and categorize the various problematic entries in your credit history and on your credit report. (You can also identify positive information within your credit report through reason codes).

Common Reason Codes

According to Fair Isaac, the top 10 most commonly given reasons (score reason codes) for low scores are:

• Serious delinquency
• Serious delinquency, and public record or collection filed
• Derogatory public record or collection filed
• Time since delinquency is too recent or unknown
• Level of delinquency on account
• Number of accounts with delinquency
• Amount owed on accounts
• Ratio of balances to credit limits on revolving accounts is too high
• Length of time accounts have been established
• Too many accounts with balances