Reason Codes

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	Reason Codes
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Personal Observation

Please notice that "consumer finance company" activities (reason codes 06, 37, and 99) of any sort will pull your credit scores down. High-risk loans indicate an inherent weakness in creditworthiness on the part of a borrower.

I have witnessed 720 score borrowers innocently pummel their scores into the low 600s by simply carrying a couple of (high risk) finance company accounts. Do not make this same mistake!

THESE ARE THE RULES OF THE "GAME" OF CREDIT

Credit reports contain much useful information. Nestled among the details are sets of diagnostic Risk Factor Reason Codes (please refer to the table below). Reason codes (also known as "Action Codes") are somewhat of an enigma to most consumers, as well as many poorly-trained credit suppliers. Reason Codes are intended to give the credit report reviewer a rudimentary explanation of the score at the precise moment that it was pulled. As your credit history builds, these codes will reflect changes that occur within your credit profile. I have added emphasis for educational purposes.

Please note the minor variations between the various CRAs (EFX, EXP, and TUX) , indicated in red. Likewise, specific wording may vary slightly from one CRA to the next, but the meanings and solutions are very much the same. Study these codes closely as a sleep inducement when you run out of suitable medications.

CODE	REASON	SOLUTION	CODE	REASON	SOLUTION
01	Amount owed on accounts too high	Reduce current account balances to below 70%, 50% or 30% of credit limits)	22	Serious delinquency, derogatory public record or collection filed	Sizable derogatory entry (collection, judgment, lien) requires immediate attention
02	Level of delinquency on accounts too high	Get back on track and pay your bills on time	23	Too many bank or revolving accounts with balances (EFX only)	Reduce the balances or close accounts beginning with those opened most recently
03	Too few revolving accounts (TUX #33)	Open more revolving tradelines,and keep them active (PLAY THE GAME)	24	No recent revolving balances	Activity is required on revolving credit accounts (PLAY THE GAME)
04	Too many revolving accounts (TUX n/a)	Close newest credit card accounts first	26	Number of revolving accounts (TUX n/a)	Indicates too many inactive revolving accounts (not generally a problem)
05	Too many accounts with balances	Limit activity to only a few accounts, and simply pay off other accounts	27	Too few accounts paid as agreed (TUX only)	Indicates too many inactive revolving accounts (not generally a problem)
06	Too many consumer finance accounts	Avoid all high risk loans!	28	Number of established accounts (EFX & EXP)	Review or revise number of established accounts
07	Account payment history too new to rate	Too little credit depth or inadequate payment history. Wait 6-12 months to reapply	28	No recent bankcard balances (TUX only)	Maintain small balances to show activity on the account
08	Too many recent account inquiries in last 12 months	Ask credit guarantors to consolidate or remove inquiries	30	Time since last account opening too short	A longer account history is required
09	Too many accounts opened in last 12 months	Slow down, hotshot! You appear too desperate to expand your tradelines	31	Too few accounts with recent payment info. (TUX n/a)	Insufficient number of active tradelines. (PLAY THE GAME)
10	Proportion of balances to credit limit too high on revolving accounts	Reduce revolving credit balances to a lower proportion of credit limits	32	Lack of recent installment loan information (TUX #4)	Request credit guarantor to update information
11	Amount owed on revolving accounts too high	Keep all revolving credit tradelines below 50% of credit limit (or request that limits be increased)	33	Proportion of loan balances to loan amounts too high (TUX #3)	Maintain balances below 50% of credit limits
12	Length of revolving credit history too short	Indicates a lack of revolving credit depth. Wait 6-12 months to reapply	34	Amount owed on delinquent accounts (TUX #31)	Reduce or eliminate all past due balances
13	Length of time (or unknown time) since delinquency	Recent delinquencies indicate irresponsibility or desperation	35	Payment due on accounts (not used)	Past due balance must be made
14	Length of time revolving accounts have been established	Lacking recent revolving credit depth. Wait 6-12 months to reapply	36	Length of time open accounts have been established (not used)	Lacking credit history
15	Lack of recent bank revolving credit information	Sparse revolving bank credit information, open an account or make certain current accounts are reporting	37	Number of consumer finance company accounts established relative to length of history.	Too many high risk consumer finance accounts
16	Lack of recent revolving account information	Lacking revolving credit depth. Wait 6-12 months to reapply	38	Serious delinquency and public records or collections filed	Settle delinquent debts, liens, or judgments
17	No recent non-mortgage balance information	Use revolving or open installment credit tradelines to improve activity	39	Serious delinquency and public record or collection filed	Settle delinquent debt, lien, judgment, or collection
18	No. of accounts with delinquency (or Frequent delinquency - TUX)	Multiple delinquencies need to be brought current and properly maintained	40	Derogatory public record or collections filed	Settle derogatory debt, lien, or judgment
19	Too few accounts paid as agreed (TUX #27)	Pay your bills on time and in full (indicates multiple collection accounts)	47	Number of consumer finance inquiries	Dispute or consolidate unsolicited inquiries, and take a hint (stop applying for credit)
19	Date of last inquiry too recent (TUX only)	Recent inquiry adversely influences scores. This indicates desperation	97	Lack of recent auto loan information	Request creditor to update account information
20	Length of time since legal item filed (derogatory public record) or collection reported	Recent derogatory entry such as judgment or lien) requires immediate attention	98	Length of time consumer finance company loans have been established	Lacking established history on high-risk consumer finance account
21	Amount past due on accounts	Past due balance requires immediate payment	99	Lack of recent consumer finance company account information	High risk consumer finance account requires information update

The unusual aspect of the Fair Isaac diagnostic Reason Codes is that due to the extremely limited number (fewer than 50) "meaningful" codes, these codes cause confusion more often than providing clarity. For instance, you will see many of the same codes on the credit report of a consumer with 800 scores (stellar credit) as you might otherwise see on a credit report with 500 scores (abysmal credit). This is merely one example of the simplified inelegance of the underlying credit scoring software. Depending upon the credit reporting service used, these diagnostic codes may be expressed using as many as five digits, with the final two digits being the actual reason code.

The three major credit reporting agencies (CRAs) all utilize credit scoring models that were independently developed by Fair, Isaac, and Company and customized for each of them. Beacon 5.0 (Equifax - EFX) and FICO 2 (Experian - EXP) scoring models provide credit scores which range from 300 to 850. Empirica 950 (TransUnion -TUX) scoring models provide a range of scores from 336 to 843 (Go figure!). All three scoring models are in dire need of improvement or replacement.

Indeed, it is possible to have "TOO FEW revolving accounts" (03) and "TOO FEW accounts with recent payments" (31). When you have credit account tradelines, you are expected to use them regularly. This is all part of the "game" of credit. You must learn to play the game by the rules or suffer the consequences.
Get with the program, please!

For a detailed explanation of ChoicePoint reason codes for insurance, etc. please click here.

WHAT REALLY TICKS US OFF!

As long as we are at it, please allow us to get a couple of other things off our chest.

Many people erroneously refer to their credit scores as "FICO^® scores". This misnomer has been perpetuated by many high profile personalities, including the fallible Suze Orman. We can only assume that she is paid handsomely for each broadcast utterance of the term "FICO^®". For the record, Suze has been on the FICO^® payroll for quite some time (and finally admitted to it on a segment of her CNBC show which aired in December 2005). Fair Isaac and Company developed the underlying code for the credit scoring models used to generate Empirica^® (TransUnion), Beacon^® (Equifax), and FICO^® (Experian) scores. Some lenders and credit guarantors may only use one score, such as the Beacon. Please note that Experian is the only major credit reporting agency that actually calls their scores FICO^®. Please, get it right!

Semantics aside, Minneapolis-based Fair-Isaac has boasted that its scoring models are used to make credit decisions at the rate of more than 750 times per second. Wow! We are very impressed. Not by the number of credit decisions per second, a PC can keep up with that snail's pace. Rather, we are amazed by the obscene amount of revenue being generated from such a crude piece of software! We had no idea!

In late 2003, Fair-Isaac Corporation (FICO^®) released a new scoring model known as "NextGen". It was their next generation of scoring model software. Curiously, none of the major credit reporting agencies (CRAs) have adopted their new system. This causes us to speculate as to whether or not the transition might upset the credit scoring equilibrium established by the existing scoring models. Have alpha and beta test results proven the new software to be so extraordinarily unstable or unpredictable that it could damage the nation's economy?

Please stay tuned on this. Nonetheless, consumers are owed an explanation as to when the extraordinarily primitive code (software) of the distant past will be replaced by code more befitting the twenty-first century. Only time will tell.

Lastly, Fair-Isaac wishes to implant its greedy claws deeply into law enforcement both here and in Great Britain. Their excuse is the growing problem of identity theft. Ted Crooks of Fair-Isaac has proposed that the FBI cough up taxpayer dollars for Crooks' (fitting name, we dare say!) hair-brained "National Joint Identity Theft Center" scheme.

We have a real problem with a large corporation, in this case Fair-Isaac, getting in bed with a government agency, namely the Federal Bureau of Investigation. After all, credit scoring algorithms from Fair-Isaac are the basis for a credit scoring system that has established a long track record of propagating erroneous information (Download Mistakes Do Happen 2004). Clearly, this would be a marriage made in hell.

Besides, the Federal Trade Commission's Identity Theft clearinghouse is doing a commendable job at the moment. They certainly do not need the assistance of Fair-Isaac. Crooks has been quoted as saying that his (bone-head) proposal differs because of "the emphasis on the use of advanced mathematics to bridge the gap with law enforcement".

Might this be the same "advanced mathematics" that provides us with fewer than fifty diagnostic risk factor reason codes to describe the complex nature of the American consumers' credit history? Spare us the bull pucky, please!