What Are FICO Reason Codes?

Every time your FICO score is calculated a set of codes is generated and delivered with the actual 3 digit number.  These codes are the FICO Reason Codes (also known as Score Factors or Adverse Action codes).  They are numeric codes along with plain English text.

These codes explain why a credit report didn’t receive the maximum score.  You will normally see 4 of these reasons accompany a score, but there can be more or less in some instances.

The reason codes are two digits with a short definition for display purposes on credit reports. An example of a reason code is “too many accounts with balances” which is code ‘05’. An example of a score and reason codes is:

FICO Score: 500  38  21  18  05

(38) Serious delinquency and derogatory public record or collection filed

(21) Amount past due on accounts

(18) Number of accounts with delinquency

(05) Too many accounts with balances

The first number is the FICO score and the next four are the reason codes. In the example above, the score was 500 and the reasons for this score are (38) poor payment history with an account with late payments of 90 days late or worse and a public record or collection, (21) an amount that hasn’t been paid on time, (18) too many accounts with late payments and (05) too many accounts with amounts owed.

MYTH – These reason codes explain why the score is so low.  That’s not true.  A FICO score above 800 is also going to have these codes.  Remember, they explain why the score wasn’t better, not why it was low.

These codes are used by the lenders to help them understand the score and include in the declination letters, hence the term “adverse action codes.”  When lenders manually review the credit file and score to approve a loan such as auto or mortgage, the reason codes help them understand the meaning.

Declination letters are sent to consumers who have been turned down for credit. By law, the lender must inform you of the reasons you were turned down, where they obtained the information, and where to get your free report.  These reason codes are used in the explanation of why you were denied credit.  But remember, FICO didn’t do the declining…that was the bank.

Consumers don’t generally receive these reason codes except in the case of a mortgage loan where credit score disclosure is mandatory under Federal law.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Credit Report, Credit Score, Improving Credit, Money & Identity

This post was written by John Ulzheimer