Understanding Credit Denial Noticesby Steve Cypher on Wednesday, December 26th, 2012
While those FICO reason codes might be confusing, the current “adverse action notice requirements” are certainly an improvement over the old system.
At Auto Credit Express we know this is true because for more than twenty years we’ve been helping car buyers with credit problems find those new car dealers that can offer them their best chances for approved car loans.
That being said, during the past two decades we’ve seen a number of improvements in credit decision process. In particular, before a recent financial reforms package was passed by Congress with new lender requirements, it was often difficult for credit-challenged car buyers to understand why their application for an auto loan was turned down by a lender.
So let’s take a look at how it all works now.
Understanding notice requirements and reason codes
Recently enacted financial reforms require that lenders send all applicants a risk-based pricing notice that must include, as FICO puts it, “The key factors or reason codes that adversely affected the credit score, with a requirement to disclose five ‘reason codes’ any time inquiries are a ‘key factor’ that adversely affected the score.”
Specifically, in order to help loan applicants understand why they were turned down for any kind of loan, FICO created 40 “reason codes” that explain why someone was either turned down for a loan or, if they were accepted, why they might have failed to qualify for the best interest rates offered by a particular lender.
All three of the major credit bureaus use this system, although they sometimes assign different “code numbers” to reasons and not every bureau uses every reason code. So this being the case, we put together the complete list of reasons and code numbers.
Next to each reason we’ve listed three code numbers. The code number used by Equifax is listed first, TransUnion second and Experian third. If a bureau doesn’t use that particular reason, an “N/A” is shown in that bureau’s space.
So here’s the list:
Amount owed on accounts is too high – 1,1,1
Level of delinquency on accounts – 2,2,2
Too few bank revolving accounts - 3,N/A,3
Too many bank or national revolving accounts – 4,N/A, 4
Too many accounts with balances – 5,5,5
Too many consumer finance company accounts – 6,6,6
Account payment history is too new to rate- 7,7,7
Too many recent inquiries last 12 months – 8,8,8
Too many accounts recently opened – 9,9,9
Proportion of balances to credit limits is too high on bank revolving or other revolving accounts – 10,10,10
Amount owed on revolving accounts is too high – 11,11,11
Length of time revolving accounts have been established – 12,12,12
Time since delinquency is too recent or unknown – 13,13,13
Length of time accounts have been established – 14,14,14
Lack of recent bank revolving information – 15,15,15
Lack of recent revolving account information – 16,16,16
No recent non-mortgage balance information – 17,17,17
Number of accounts with delinquency – 18,18,18
Date of last inquiry too recent – N/A, 19, N/A
Too few accounts currently paid as agreed – 19,27,19
Length of time since derogatory public record or collection is too short – 20,20,20 Amount past due on accounts – 21,21,21
Serious delinquency, derogatory public record or collection filed – 22,22,22
Number of bank or national revolving accounts with balances – 23,N/A, 23
No recent revolving balances – 24,24,24
Number of revolving accounts – 26,N/A,26
Number of established accounts – 28,28,28
No recent bankcard balances – N/A,29,29
Time since most recent account opening too short – 30,30,30
Too few accounts with recent payment information – 31,N/A,31
Lack of recent installment loan information – 32,4,32
Proportion of loan balances to loan amounts is too high – 33,3,33
Amount owed on delinquent accounts – 34,31,34
Serious delinquency and public record or collection filed – 38,38,38
Serious delinquency – 39,39,39
Derogatory public record or collection filed – 40,40,40
Checking this list against a risk-based pricing notice, you should be able to figure out why you were either turned down for a car loan or failed to qualify for the lowest interest rate offered by the lender.
Where to go from here
If your credit denial was for a conventional auto loan you should know that, for most applicants, this is not the end of the road and there’s still a good chance you have options that include more than just a buy here pay here (BHPH) car dealer.
Here at Auto Credit Express we specialize in placing applicants with bad credit with new car dealers that can offer them their best opportunities for car loan approvals.
So if you’re ready to begin reestablishing your car credit, you can begin now by filling out our online auto loans application.