It hurts when you've been rejected for a mortgage.þOf course, there are many reasons you can be turned down. You may not have been employed long enough in your current job, for example, or you may not make enough money for the property you want to buy.þBut if you are spurned because of a low credit score, the pain of rejection is sometimes made worse by the reason your score didn't make the grade.þActually, lenders don't give you a reason, per se. Rather, you receive what's called a ÿreason codeÿ: a two-character numeric code and a terse, industry-speak statement — for example, ÿ01 Amount owed on accounts is too highÿ — as to why your credit score isn't higher.þSometimes you are given two, three or even four reason codes. But even if you get just one, you're left scratching your head, wondering what in the devil the lender is talking about.þA new tool from scoring model VantageScore may help. VantageScore is a rival to FICO, the company that created the algorithms used by the major credit reporting companies. It is meant to empower consumers to better understand their credit profiles and how to improve them.þAccording to research by VantageScore, even lenders themselves are sometimes baffled by the codes, which are generated by credit reporting firms. And even if lenders aren't confused by the codes, they are certainly frustrated by the fact that their customers are.þBut a new website from VantageScore, ReasonCode.org, offers new insight in plain English (or Spanish) into the meaning of each reason code and perhaps how to fix the problem. It won't help you right away, but it should ease the agony when you reapply for funding.þReasonCode acts somewhat like a search engine. You can type in a specific reason code that you received from your lender and instantly receive a deeper explanation of the code, plus tips for addressing credit behaviors that negatively affect your credit score.þThere are dozens of reason codes or factor codes from the three major credit reporting companies: Experian, Equifax and TransUnion. You are likely to see different codes for the same reason when comparing two or more credit scores.þProblem is, the FICO codes don't line up with those from VantageScore. But if you take the time to enter a few key words or phrases from your FICO codes into the ReasonCode search box, you will find a better explanation of what the code might mean. Then, run your cursor over that explanation and you'll see several possible ways to fix the issue.þFor example, you might see a reason code 14, or ÿLength of time accounts have been established.ÿ Search the word ÿtimeÿ at ReasonCode, and you get several choices, including one that says, ÿTime since oldest account opened is too recent.ÿþClick on that statement and you'll get a deeper explanation and a tip on how to avoid the situation the next time.þIf you get an 05 reason code, ÿToo many accounts with balances,ÿ type the word ÿbalancesÿ and you'll learn ÿyou have bankcard or revolving accounts in your credit file with balances that are high compared to the credit limit on the account, which is a proven indicator of increased risk.ÿþWhat can you do? ÿPay down balances on your accounts and keep them below 30% of the total credit limit on that account,ÿ ReasonCode suggests. ÿOver time, this will have a positive impact on your score.ÿþWhen you receive a credit score, the reason codes will be listed in order of impact, so the first one listed is the most important — the No. 1 reason your score isn't higher. The second number corresponds to the second-most-important factor in building your score, and so on.þEven if you receive a high score, you'll still see reason codes. Any score less than the top number will see codes as to why the score wasn't higher. Consequently, some codes on the list are not terribly significant.þBut for the rest of us, reason codes could be considered a road map to improving our credit scores, if we could understand them.þRemember, the score isn't the sole determinant in whether you will receive funding or the interest rate you will be charged. But it is a key factor, so improving your score can increase your chances.þIf you try the exercise outlined above, you'll have a better understanding of why you didn't score higher and what you can do better the next time.þlsichelman@aol.com
Source: Los Angeles Times
