Earlier on UWSA we discussed your credit score and how to interpret it. Now, we introduce a new tool for raising your scores: your Credit Risk Reason Codes.
These codes are part of your credit report, and a few of the most pertinent ones may also be provided if you are rejected for a new credit line. Since descriptions are vague – numbers are sometimes all that’s included – many consumers do not realize these Risk Reason Codes can be extremely useful in diagnosing credit.
In the long run, tailoring your debt management strategy to take your personal “risk factors” into account can lead to lower credit card balances and a much easier time dealing with creditors of all kinds.
Seven Common Reason Codes and What to Do
There are less than 50 Risk Reason Codes, and some can be confusing. Depending on how mature your credit history is, and uses you’ve put your creditworthiness to, you’ll encounter different codes at different times. In some situations, credit scores can seem to plateau due to situations in your Risk Reasons; likewise, these clues are vital to deciphering why your score may be dropping or not rising as fast as you would prefer.
01: Amount owed on accounts too high: In short, the more debt a consumer holds, the more risk they will represent to creditors. At a certain point, a consumer is considered “debt burdened”; that is, their total monthly payments represent a substantial portion of their documented income. This Risk Reason represents conditions where creditors are concerned that further debt will imperil your ability to pay accounts. There are also several related messages, all of which are resolved by eliminating account balances and reducing long-term balances below 50% of available credit.
02: Level of delinquency on accounts too high: If you’ve been making payments late recently, you may encounter this. Take corrective action by communicating with your creditors and bill collectors, arranging for more favorable payment terms. If necessary, look into debt consolidation or credit counseling as a means of recovering your bearings and getting all of your accounts current.
03: Too few revolving accounts: In certain situations, especially early on in credit history, you might find that the number of accounts you have works against you. There are two ways this can happen: the more common is this; too few accounts. In terms of credit history, your accounts carry more weight as they age and you maintain them faithfully; so even if you strive to be responsible by holding few accounts, you may be penalized.
04: Too many revolving accounts: The opposite of the problem above is this. You can and should close down accounts you have no intention of using, and it may take some time to strike the right balance for your needs. Close accounts beginning with the newest first. To prevent “zombie debt”, be sure you obtain written confirmation of each closure along with a statement showing a zero balance on the account just prior to closure.
05: Too many accounts with balances: Even if balances are not high, having too many active accounts can result in a credit score penalty. That said, you have to balance this need with the need to maintain occasional use of each account to ensure your creditors don’t close them without consent. If you receive a notification of too many balances, it may simply be a matter of paying off low-balance, infrequently used accounts.
08: Too many account inquiries: “Credit pulls” that lenders execute when checking your credit history are also part of your records. If these become too frequent, they result in this Reason Code, further prejudicing your credit status. If at all possible, try to limit opening of new accounts to infrequent occasions six months apart or more. Also bear in mind that if you’re opening many new accounts, even if you are being approved for all of them, this can still temporarily damage your credit and lead to a Risk Code of its own.
19: Too few accounts paid as agreed: If you see this message, it’s another time to consider debt consolidation. This error means that there are a number of unsatisfied debt collection accounts outstanding against you. If this seems inaccurate, review your credit report thoroughly for evidence of inaccuracies, fraud, or “zombie debt” that you are sure has been paid in full, but is still reported as an outstanding balance.