Beacon Score – Understanding the Basics

The Beacon Score is one of the credit measures you might stumble upon regarding your creditworthiness. When you want to obtain financing from any source, your personal credit score will come into play, determining whether you’re trustworthy enough to be offered a credit or not.

There are several things that financial institutions use to determine if they should issue credit. These factors include collateral, capital, capacity, conditions, and character. The latter is harder to resolve, but the beacon score comes to save the day. What exactly is it, though? Let’s find out!

What Is the Beacon Score?

The beacon score is a credit model that Equifax developed. It’s one of the two credit measures on Equifax reports. The beacon score was the first model developed around 1989 and used as the company’s primary credit model until the early 2000s. The score has since been rebranded as the Pinnacle Score. The Pinnacle score was a new credit model to assess factors in determining a person’s creditworthiness. The range of the beacon score range is 850 to 300.

The beacon (pinnacle) score is still actively used today. The score serves as a story of a person’s past and how they handled their credit. A low credit score indicates that the individual would be a higher risk to a creditor; thus, it is crucial to understand your credit score to improve it before making large purchases.

How Is The Score Calculated?

The exact calculations for the algorithm that is well-protected secret by Equifax, but some prevalent factors are well-known components of the measure. These factors include your credit history, how much you owe, how you handle your credit, new applications for credit, and the age of your credit history. Let’s take a look at how this all breaks down.

Calculated Beacon Score

On-time payment history

Your payment history accounts for 35% of your total score. This is the single most crucial factor for your beacon score. If you make late payments on your cards, loans, car payments, and mortgages, you can take a massive hit on your score. It is completely vital to make your payments on time. Late payments can incur other unsightly problems such as late fees and interest rate penalty increases.

How much you owe

The amount of money you carry month over month equates to 30% of your score. A common term used in the credit world is debt-to-income (DTI), representing how much you owe your creditors vs. how much you are allowed to use. This factor alone is a common reason for many people to have a lower score overall.

A good rule of thumb is to try to keep your unsecured credit card debt under 30% of the total amount that you are issued. An example, if a credit card authorized you a $10,000 credit limit, you would want to carry no more than $3,000 month-over-month.

How you use your credit

A staggering 15% is how you use your credit. You are probably thinking to yourself, why does some card how I use my credit? The answer is simple, and your behavior patterns can result in how you manage your credit will give creditors a good indication of how risky it is to issue credit!

Some types of debt are “good” credit. Good credit includes mortgages, student loans, and secured debt. Other types of debt are riskier such as auto loans, unsecured credit cards, and retail credit. It may not be “bad” to have the riskier debt; you want to think about how you carry that debt.

Let’s take two examples of two individuals using credit.

Example 1: Daniel

Daniel is currently renting an apartment and has recently bought a brand new Toyota SUV. He has four credit cards and retail credit with Bass Pro Shop.

Example 2: Sharron

Sharron has had a mortgage for the last five years, and her Honda is paid off. She has two credit cards which she pays off every month, and has three years left on her student loans.

If you were a creditor, whose behavior exhibits better creditworthiness? If you said Sharron, then you are on the right track.

Frequency of new credit

Approximately 10% of your score depends on your newer credit. This factor looks at the amount of new credit inquires or credit issued recently and over a short time. Equifax considers it a warning signal if a person has multiple inquires in a short period of time. It is also regarded as high risk if a person opens a bunch of credit accounts in a short amount of time, as it could be signaling that an individual is under financial stress.

When you apply for a new credit card, loan, or mortgage, it is considered a “hard credit inquiry.” You will want to conscious of how many times you do this as it might affect your score.

Note: Reviewing your credit score will not go against the above metric.

 The total average age of your credit

The remaining 10% of your score is in the total age of your credit. This final portion of your beacon credit score is assessing how long you have had credit with Equifax. The longer you have responsibly handled your debts shows creditors that you are dependable. In turn, you will see positive increases in your score.

Understanding Beacon Scores

The Beacon Scores commonly range from 300 to 850. The higher scores demonstrate good behaviors based on the five calculation factors. Let’s take a closer look at the score ranges and what is considered good and bad.

Beacon Score Gauge

Excellent Score (750-850)

People fortunate enough to have an excellent credit score have exemplified all good habits of creditworthiness. They will reap the rewards of getting the best interest rates and encounter no issues with being approved for any loan. Commonly these individuals have had credit for 20+ years, a healthy mix of credit types, a perfect history of on-time payments, and always keep their debt under 30% of total available credit.

Good Score (700-749)

Individuals with good credit will still benefit from a strong history of good credit behavior and still receive above prime interest rates. These individuals usually have 10+ years of credit history, a healthy mix of credit types, an almost perfect record of on-time payments, and have their debt under 50%.

Fair Score (640-699)

Fair credit tends to begin to encounter challenges with getting approved loans and credit. These individuals start to see high-interest rates and do not always get the best offers from creditors. A person who has a fair credit score has 10+ years of credit history, a high mix of credit types (good and bad), healthy history of on-time payments with a minor blip, and have debt under 50%.

Poor Score (500-639)

Poor credit will have struggles with getting approved for most types of loans. These individuals see abnormally high-interest rates if approved at all. A person who has a poor credit score has 5+ years of credit history, a nasty mix of credit types, a history of late payments, and debt under 90%.

Bad Score (300-499)

Bad credit scores create difficulties for people who want to do anything related to getting approved for a loan. Individuals with bad credit scores typically have no access to credit, and loans are very sparse. A person who has a bad credit score has a proven history of late payments or defaults, and commonly debt exceeds 95%.

What are the different types of Beacon Scores?

Did you know that there are different types of beacon scores? The scores are broken into different categories and look at other factors depending on the type of credit. Below are the different types of scores.

Beacon Base – This is your overall Equifax Score.

Beacon Auto –This score is commonly accessed by car dealers when a person applies for a car loan.

Beacon Bank Card –   Banks will commonly use this scoring to assess lines of credits for individuals (secured and unsecured)

Beacon Mortgage – This score is for mortgage companies and is commonly close to the base score.

Pinnacle 1 – The original scoring for Equifax creditworthiness.

Pinnacle 2 – An updated algorithm for overall creditworthiness.

Whenever a lender utilizes Equifax, they will receive full disclosure of these different scores. This will explain any differences between the different types of scores. Depending on the lender, they may only access one kind of score by request. The different types of beacon scores should not be your primary focus as the credit receiver.

How can I see my Beacon Score?

There are many different ways to get a copy of your score, including free and paid services. Here are a couple of my favorite ways to access your score.

  1. Equifax – There is no better place to get your beacon score than from the company that owns the model. You can get a free copy of your score on their website, and if you want more details, you can subscribe to the credit details and monitoring service.
  2. Credit Karma – This is a free service where you can see your Equifax and TransUnion score. They have additional paid services you can utilize to dig deeper into your score. You can visit their website or use their apps on iOS & Android.
  3. AnnualCreditReport.Com – This is an entirely free website established from the Fair Credit Reporting Act (FCRA) and requires the three major agencies Equifax, TransUnion, and Experian, to provide you a free copy of your credit report.

How can you improve your score?

As you can see, the beacon score is vital in measuring creditworthiness and is 1/3 of the overall credit picture. Let’s recap a couple of strategies you can use to improve your Beacon Credit Score.

1. Always pay your loans and credit cards on time!

It is crucial to be a good steward of your debts. The most considerable portion of your score is your ability to pay on time. Don’t worry if you have a blemish or two on your credit history. People make mistakes over time, and after approximately seven years, the blemish is no longer recognized as long as you have demonstrated exemplary behavior forward.

2. Check your scores often.

It is widespread (sadly) to have misrepresentations or fraudulent activity using your credit in our digital age. Check that your score is what you expect and look into the details of Equifax’s score. Make sure that you recognize the debts against your score. If you see something you do not remember, make sure to dispute it with Equifax.

3. Pay down your debt below 30% of your limits.

If you carry a lot of debt month-over-month, you will want to target having below 30% of the debt. It is always best practice to pay off your unsecured credit.

Wes Durham

Wes Durham is the founder of Develop Your Wealth. He has a long-running career is a mix of financial technology and education. His main goal is to help others develop good saving habits, money earning opportunities, debt balancing and wealth development.

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