Making it a Village or Kin reputation would also mean that your actions are more likely to be reflected in your alts and that your village is less likely to tolerate housing you (if you like to visit other villages and...oh I don't know... steal a cupboards worth of sausages.) Because then other villages and players will be less liekly to trade or co-operate with that village.
The reputation stat would definitely need to be affected negatively by trespassing, vandalism, theft, violence and murder. Perhaps time spent playing without performing these illegal activities would return your state to neutral, reflecting the village authority forgetting about the theft of bread made weeks ago. Gaining a positive in Reputation would have to be given by village members with apropriate authority and a positive or neutral rep, as there aren't actually any 'good' actions to make in the game that I know of. I would personally like to know if someone is a griefer or occaisional thief when considering how I interact with them....or if they are smart enough just rate each other highest...