If you’ve ever been denied credit, you’ve also received a letter — known as an “adverse action notice” — explaining why the creditor rejected you.
This notice might have included lines that looked like this: “16-Lack of recent revolving account information” or “02-Level of delinquency on accounts.” And you might have wondered what the heck they meant.
These are called “reason codes” or “adverse action codes,” and a creditor must include up to four if it used your credit score in deciding not to approve your application. Some notices just list the statements.
A creditor might also decide not to approve your application based on factors such as your income or debt, which are harder to control. But understanding credit score reason codes will help you make sense of your credit score and how to make it better.
Not all reason codes are the same
The two major credit scoring companies are FICO and VantageScore, and each has several versions of credit scores. You'll receive different reason codes depending on which credit scoring company and score version the creditor used.
If the creditor used VantageScore for your application, you can enter a reason code you received on the VantageScore website www.ReasonCode.org. The site explains what the code means in plain language and what you can do to build your credit score. (It also has a list of every reason code you might receive.)
FICO, which is more commonly used by lenders, doesn’t have a similar resource.
NerdWallet provides a VantageScore from credit bureau TransUnion, updated weekly, as well as insights to help understand why your score changed.
What your credit score reason code means
Reason codes fall into five major buckets, and each can offer advice about building your scores:
Delinquent accounts or derogatory public records: Bills left unpaid 30 or more days past the due date are considered delinquent. A delinquent account can appear on your credit reports and hurt your scores. Derogatory public records refer to bankruptcies, civil judgments or tax liens. The bankruptcy may have been discharged, judgment settled or tax lien paid, but if this happened recently enough, the event will still factor into your credit scores. However, all of these negative marks do fall off your report with time, allowing your score to recover.
Lack of recent loan/account information: Reason codes with this language may specify “revolving” accounts to indicate credit cards or “installment” accounts for other types of loans. This code either means that your accounts have not been active recently or you don’t have that type of account. Credit scores benefit from having a mix of accounts — but you probably shouldn't take out loans just to bump up your score. Using the accounts you have responsibly and paying your bills on time and in full is the best way to build your score.
Amount owed on accounts is too high: This reason code is an indicator of your debt level. If your credit card balances are high, or the amount paid down on installment loans is too low, try paying more toward your debts to help your scores.
» TIP: How to pay off debt
Length of time accounts have been established: Having new credit accounts or loans — or having a short credit history — can mean your accounts have a low average age, and that can drag down your scores. Asking a family member to add you as an authorized user to a long-established credit card account can increase the average age of your accounts. If that’s not possible, you may need to wait and apply again later.
» TIP: 5 ways to establish credit
Too many accounts or inquiries: This type of reason code is straightforward — if you’ve opened a lot of accounts in a short span of time or applied for credit multiple times, it will affect your credit score, and you might be denied new credit. While you wait to apply again, study the factors that go into your score and what the creditor looks for in an application.