Credit Report Codes: Application
Credit report codes are numerical and/or alphabetical representations of any violation of credit norms. There are codes for delinquency, missed payments, amount owed and other violations. Credit report codes are often called reason codes, credit scoring codes or credit score codes.[br]
Credit Report Codes: Application
These codes appear on every credit report pulled by banks or other lending (inquiring) institution. Usually a report will have four credit report codes on it for the inquirers. The real application of these codes is in calculating the credit score.
Each individual or organization is given a starting score that differs from one credit agency to another. The appearance of these codes on the report adversely impacts the score. The amount of deduction is known only to a few individuals who designed the codes (Beacon, Fair Isaac, Empirica) or the credit agencies. It is through these codes that the credit score is quantified.
Credit Report Codes: Weight
A close look at the credit codes reveals that they correspond to the five classes found in credit reports. Each class has its own weight in the credit score. The five categories are:[br]
- Past credit performance and payment history: This section has a weight of 35%. A missed payment thus reflects a code and decreases the score.
- Current indebtedness and its ratio to the credit limit: This section has a weight of 30% and codes reflect the ratio. A higher ratio attracts more deductions from the credit score.
- Duration of credit history and the time for which a credit line has been used: This section has a weight of 15% and reflects the period for which a consumer has been using credit. A longer duration with a steady payment history is a positive sign.
- Kinds of credit in use (such as mortgage, loans, revolving account): This section has a weight of 10%-15% depending on the credit agency. More variety in the credit shows creditworthiness and is, hence, considered positive if the payment history has been good.
- Number of hard enquiries on the account: This section has a weightage of 5%-10%. A large number of inquiries reflect badly on the credit score.
A credit report can be quite complex and the use of credit report codes helps quantify the credit score.
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