Home > 2013 > Credit Score

How to Decode Your Credit Score

Advertiser Disclosure Comments 0 Comments

A common complaint about credit scores is that they are a “black box” containing a set of mysterious secret formulas that can confuse even the most savvy of consumers.

While there are many ways in which trying to understand credit scores can be frustrating to consumers, for high scorers eyeing that elusive perfect score, part of the confusion often comes in the form of those seemingly “meaningless” reason codes that accompany almost all credit scores, good or bad.

By meaningless reason codes, I’m talking about the comments that accompany high (over 760 FICO) credit scores, with such descriptions as “no recent bankcard balance information,” “too many bankcard charge accounts,” “lack of recent installment loan information,” and other messages that tend to make someone who is effectively managing their credit feel like they should be doing more.

Understanding Reason Codes

This is a good question, to which a logical response would be that these reason codes represent the scoring factors with the greatest difference between the number of points possible and the number of points achieved. In other words, these are the areas of the score where you “lost” the most points.

Reason codes can be valuable to consumers with scores in the lower-to-middle scoring ranges, as they point out the areas needing the most improvement, mostly within the payment history and amounts owed categories that together make up almost two-thirds of a FICO score.

For high-scoring consumers, who by definition have already been paying on time and keeping balances low — practices everyone should follow — reason codes tend to focus on the less important scoring factors that can help distinguish one high-scoring consumer from another to a lender, but that doesn’t make much sense to someone simply trying to do what it takes to raise an already good score.

Some Common Reason Codes

  • No recent bankcard balance information. This usually means there are no credit card accounts with balances on the credit report. To remedy this situation, you may be tempted to stop paying your balances in full each month, and instead make only minimum payments.  However, doing so is more likely to have the opposite effect of dropping your score and replacing that reason code with one such as “amount owed on revolving balances is too high.”
  • Too many bankcard charge accounts. This one sounds pretty straightforward, but there’s a catch. Notice how this reason code doesn’t say there are too many “open” cards — just that there are too many cards on the report? People often interpret this reason code as “too many open bankcard charge accounts” and close one or more cards, not realizing that by doing so they raise the risk of higher credit utilization (balance/limit ratio) and a lower score, accompanied by the reason code, “proportion of balances to credit limits on revolving/charge accounts is too high.”
  • Lack of recent installment loan information. This code is similar to the first one above, with loans replacing credit cards.  Taking out a new loan to satisfy this reason code is more likely to be counterproductive by lowering your score and telling you via the reason codes that your “ratio of loan balances to loan amounts is too high” and you have “too many accounts recently opened.”

So if these meaningless reason codes are starting to make some of you high scorers feel like you can’t win for losing, remind yourself that a 760 FICO score is likely to qualify you for the same credit terms that a perfect score will, and go back to managing your credit as you’ve been doing all along.  And if you’d like to get a better understanding of which credit score components you should be working on, get your free Credit Report Card from Credit.com or pull a free credit report once a year from each of the credit bureaus.

Image: Digital Vision

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team