The Frugal Creditnista

My Credit Application Was Denied … Why?

‘Tis the season that a lot of people apply for store credit cards and other forms of credit…. and get denied.

Some have no clue why and simply feel their credit sucks and ponder on where to begin to fix it.  Or conversely, ‘My credit is great what is wrong with THEM?'

The answer can be found in the reason codes.  In your denial letter they'll state which credit bureau they pulled your credit information from and the reasons why your credit application was denied.  

The reason listed first is the #1 reason why you were denied credit; followed by other factors that led to the denial as well.  According to FICO, this is to inform us of what we need to do in order to improve our credit over time.

Some common reasons could be: too many inquiries, not enough revolving accounts, serious delinquency and derogatory public record or collection filed, amount past due on accounts, too many accounts with balances, etc.

For example, credit score 500
Reason codes: 40 27 24

Your credit score is 500.  The numbers behind the credit score are:

40 Derogatory public record or collection filed
27 Too few accounts currently paid as agreed
24 No recent revolving balances

This is telling you the reason you are receiving this score is because #1 you have a derogatory public record or collection filed (affecting your score the most), #2 you have more accounts reporting negatively (late payments, etc) than you do reporting positively as Paid As Agreed/In Full; #3 you have no recent open-ended accounts (credit cards, lines of credit).

The reason codes basically explain the factors supporting your score; not why it's so low.  All credit scores have reason codes behind them – from 300-850; it simply lets us and the creditors know the reason why our score didn't get the most points available.  There are usually 3-4 reason codes behind your score that again, tell the lender why your credit information didn't get a higher score.  We as consumers don't automatically get this information, it is relayed to us by the creditor as an educational tool.

Both FICO and VANTAGE have reason codes.  Vantage has a pretty cool website called ReasonCode.org where you can enter your reason codes to find out why your score isn't better. FICOs are typically available with a Google search but I'll warn you there are over 100 depending on the model and credit bureau – they never make it easy do they? 🙂

Hope this helps!

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