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A Credit.com reader named Roger recently took me to task for my blog post, How to Decode Your Credit Score, that focused only on high credit scores and neglected some of the common reason codes that accompany lower credit scores:

What about reason codes: Serious delinquency and or public record or collection filed. Time since delinquency too short, or my favorite Number of delinquent accounts. OH Yeah, we are talking about how to decode your extremely high credit score…. I forgot.

My apologies go out to Roger and others who have some negatives on their credit report, as the reason codes they receive are just as important and can be just as confusing as the codes that come with the higher scores.

Reason codes, aka score factors, are provided to consumers along with their credit scores, and indicate up to five of the scoring calculations having the most negative impact on a score. These are the top reasons why a score is not higher, listed in order of importance. For example, if your first two reason codes indicate, in order, “serious delinquency” and “time since delinquency is too recent,” you’ll know that a seriously late payment is hurting your score more than any other factor, with the fact that it occurred recently also having a negative impact.

For consumers looking to rebuild their credit scores, the following explanations apply to some of the most common score factors for scores under 700:

1. Serious delinquency. A “serious” delinquency refers to either a recent 60-day late payment or any payment 90 or more days past due. Less intuitively, however, this designation can also refer to an account reported with a “settled for less than the full amount due” status, resulting from a debt settlement or short sale, and accounts reported with the description “partial payments are being accepted,” indicating a special payment arrangement between the consumer and lender, including some early-stage mortgage modifications.

2. Serious delinquency and public record or collection filed. This reason code appears when a serious delinquency is accompanied by a third-party collection agency debt or public record item, such as a judgment, tax lien or bankruptcy. A collection item of this sort can represent anything from unpaid credit card debt to a medical bill to a parking ticket.

3. Time since delinquency is too recent. When the credit score considers late payments of 30 days or more, or any “serious delinquency,” the length of time since the most recent incident is an important factor, resulting in additional damage to the score if occurring within a recent timeframe.

4. Number of accounts with delinquency. In addition to the recency of negative items weighing heavily on a credit score, simply the number of accounts having late payments of 30 days or more can further depress the score, as multiple accounts with a history of late payments indicate higher risk.

5. Proportion (or ratio) of balances to credit limits on revolving accounts is too high. Translated, this reason code refers to “credit utilization” (balance/limit ratio), which measures the amount of available revolving credit being used. This factor makes up almost 30% of the score, with the higher the utilization percentage, the lower the score.

Again, by identifying the top reasons why your score is not higher, reason codes provide some of the most useful credit scoring information available to consumers — both high and low scoring — and come free with any credit score. You can also use a tool like the free Credit Report Card to see which major components of your credit profile are pulling down your score.

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  • http://credit.com jimmy d

    i have one bump on my credit ,i have a credit card settlement over 4 years ago ,how much is this still hurting me my score.My score from credit .com is always hovering around 760

    • http://www.credit.com Barry Paperno

      Hi jimmy d, My first thought is that with a 760 score that settlement can’t be hurting your score(s) too badly! Assuming it’s being reported as “settled,” the rest of your credit report – particularly your payment history and card utilization – must be immaculate. And if so, kudos to you!

      With a score that high, however, I can’t help but wonder exactly how the settled account is being reported on full credit reports from each of the credit bureaus, i.e. from AnnualCreditReport.com or the bureaus directly. Have you looked at all three reports recently? Also, if you’d care to share the reason codes you received with your score, that could be helpful. -Barry

  • Richard

    My credit score is really bad,is tittering around 540-590.I have been through 2 Bankruptcies and all have been discharged.
    How much will hiring a credit-cleaning company help me clean up my credit or is it a waste of money to hire them,as some people had said that it is.
    What’s your expert advice on that.Would appreciate your advice.

  • http://yahoo Pamela Burgess

    I went through a divorce where the judge gave my home (I had the home before I got married) to my ex-spouse for 18 months (he was supposed to get the home in his name). My spouse did not do that and has been living in the home rent free. It has been 4 years where I have been trying to give the home back to the bank (Bank of America). They have not given me the approval and this is affecting my credit score (610 from 810). They won’t even approve a short sale. How can I get this house off of me and rebuild my credit? This is the only thing affecting my credit.

    • Gerri Detweiler

      Pamela – Do you have an attorney helping you? It sounds like you need to get legal help to resolve this situation.

  • Ray

    How long would a short sale affect your credit and score all other accounts have always been paid on time.

  • Dan

    Post-bankruptcy foreclosure. We had a bankruptcy discharged in Sep 2010 and our credit report correctly list this loan as “Included in bankruptcy”. We tried to give this rental property back to the bank with Deed In Lieu back then, to no avail. Chase sat on it for almost 3 years requiring and rejecting paperwork, one after another. Finally now, we put the house back on the market, trying to put this behind us, hoping to sell it with no loss. And out of the blue at the same time, Chase decided to foreclose on the property. So we are working with them and the broker to sell the property with the possibility of a short sale.

    So my question is since the loan was included in the bankruptcy and the credit report says it will be removed in 2017, can Chase put on a newer (2013) foreclosure/short sale date on the loan, if it does not sell?

    We have waited this long to come out of the 3-year period to think about getting a mortgage. We don’t want this new date to push it out another 3 years again.

    Thank you.
    Dan

    • Gerri Detweiler

      Yes, my understanding is they will be able to report the new action on your credit reports.

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  • Gerri Detweiler

    Richard – No need to spend money on credit repair. They can’t do anything you can’t do for free. Get your credit reports at AnnualCreditReport.com and your credit score using Credit.com’s free Credit Report Card. If there is something you don’t understand you can post questions here on the blog and we’ll do our best to answer!

  • http://www.Credit.com/ Gerri Detweiler

    Factors related to time – time since delinquency and length of time accounts have been established – do get better with time. Even if they remain on your reports, they have less impact over time. (The past 24 months is most heavily weighted in the scores.)

    I don’t know what credit references you have now, but if you don’t have any credit cards, or just one that is open and active, I would suggest you think about a secured credit card.

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