US FICO credit risk score reason codes

March 31, 2010

Here is an official document straight from the source: The FICO credit score reason codes list. ^{(** Update 1/2015) (* Update 8/2013)}

It is a base piece of the FICO puzzle; the reasons that could be given that the score is not higher and that are delivered with a score. Only four or five reasons are usually presented with a score, and they they are provided in order of priority (the ones lowering the score the most at the top, to the least, at the bottom).

The list is obviously not intended for consumers as it refers to lenders and lawyers and regulatory compliance. One purpose of the reason codes is to assist lenders in providing loan applicants with "adverse action" notices. Simply "Your credit score is too low" is not an acceptable reason for denying a loan. And, since the score formula is secret, somebody has to tell the lender why the score is low so they can pass that along to the consumer in the form of an adverse action notice as required by the Equal Credit Opportunity Act (Regulation B of the Federal Reserve), or ECOA.

Statement of specific reasons. The statement of reasons for adverse action required by paragraph (a)(2)(i) of this section must be specific and indicate the principal reason(s) for the adverse action. Statements that the adverse action was based on the creditor's internal standards or policies or that the applicant, joint applicant, or similar party failed to achieve a qualifying score on the creditor's credit scoring system are insufficient. - US Code Title 12, Part 202 (ECOA), § 202.9

Before this document, FICO had not published the reasons and codes on the web, although others have published their versions. Indeed, you won't find FICO's list by using a search engine. The company dubbed the document "US FICO Risk Score Reason Codes," and it is dated June, 2009.

While one of the most fundamental documents, to date, it isn't the holy grail of credit scoring; it's more like the Rosetta Stone. Or, maybe it is just the parts list of the FICOmobile credit score engine shop manual. Depending on their level of understanding of the system, it is more or less to individuals. There are other metrics of the FICO system with similar importance: Like the weight of the individual factors, or the scorecard list.

In July, 2008, FICO (the company)(then "Fair Isaac") testified before the U.S. House of Representatives:

myFICO also has added abundant educational materials about credit scoring to www.myFICO.com. This includes the original list of all the credit factors that are assessed by the FICO scoring model with explanations, what information the model ignores, how consumers can take action to improve their scores over time, how to prepare for a loan, and much more. myFICO created an 18-page booklet for consumers titled "Understanding Your FICO Score" which is available through the website.

Perhaps.

The list to which FICO refers in the testimony contains 22 items. Or 20. The reason code chart has these numbers for the different FICO brands (excluding Industry Options codes):

• 33 - Equifax BEACON
• 32 - TransUnion FICO Risk Score, Classic
• 32 - Experian Experian/FICO Risk Model

Specifically, the reason code chart specifies that "Too many inquiries" in the last 12 months is a factor, but the the dumbed-down list intended for consumer consumption at myFICO.com merely refers to just the number of recent credit inquiries.

Here's another vague one. On the myFICO list, it's just "Lack of a specific type of balance, in some cases," and "Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)." However, on the very specific official reason code list, it's "Lack of a recent installment loan information" and "Lack of recent revolving account information," while "Lack of recent retail account information" is not a factor.

A peculiarity of the list itself is that FICO's NextGen score takes up the first column. In 2005, the National Association of Mortgage Brokers lamented to the Federal Trade Commission, "Fair Isaac also developed a more comprehensive scoring model called Next Generation approximately 5 years ago, which as of today has still not been embraced by the government sponsored enterprises (GSEs) - Fannie Mae and Freddie Mac - and secondary market for the use in underwriting mortgage loans."

But, hey— things are going so well, who needs better risk assessment?

* Update 8/12/13. FICO changed the address of the document. It was http://www.fico.com/en/FIResourcesLibrary/FICO_Risk_Score_Reason_Codes_1424PS.pdf.

**Update 1/11/15. FICO changed the address of the document. It was http://www.fico.com/en/wp-content/secure_upload/FICO_Score_Reason_Codes_1424PS.pdf. Notation at bottom is the same: "1424PS 07/13 PDF".