Understanding your Credit Score

To help dispell all the myths and mystery behind the Beacon Score

Category: Buying / Selling
Tags: credit

Added Mar 2, 07 by joel0622

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Beacon is a generic risk score developed by Equifax and Fair, Isaac that predicts the likelihood that an account will become seriously “delinquent” in the next 24 months. “Delinquent” can mean:

60 days late

90 + days late

Charge-off

Repossession

Bankrupt

Fair, Isaac also developed a generic risk score for Trans Union and Experian.

Beacon scores range from 300-850. The higher the score, the lower the potential for serious delinquency (The higher the score, the lower the risk).

Beacon is a non-judgmental tool.

Beacon is a living, breathing score. As your credit changes so does your Beacon score. For example: As you open new accounts or start to slow pay a credit card – your Beacon score changes.

PREDICTIVE VARIABLES:

The most predictive variables that affect a Beacon score are:

1. Consumers Previous Credit Performance:

Since Beacon is predicting the future, the most predictive variable is your recent (12-24 months) credit behavior!

Beacon looks to see how long it has been since the most recent 60 day (or worse) delinquency.

Beacon looks to see what the highest level of delinquency reached in the last year.

Beacon looks to see the number of months since the most recent derogatory public record.

Charge-off: A new Charge-off bears more weight than an old charge-off.

Paid/Unpaid Collection Items: Beacon does not care if a Collection Item is paid or unpaid. As far as Beacon is concerned, an account that has gone to Collection status is considered to be as bad as an account can get. However, Beacon does care how long it has been since the last Collection Item.

2. Current Level of Indebtedness:

Beacon does not have the luxury of knowing what a consumer’s debt to income ratio is. Therefore, Beacon concentrates on the level of debt (especially Credit Card debt) that a consumer has.

Beacon weighs heavily against credit card debt due to the fact that credit card debt is unsecured.

To help increase your Beacon score: Make sure that you are never over 50% maxed out on any one credit card.

3. Amount of time credit has been in use (Credit Stability):

Has the consumer had existing accounts open for 10 years or 6 months? Chances are, the more time Beacon has been able to track a consumer’s credit behavior, the better the Beacon score will be.

4. Pursuit of New Credit:

Has a consumer been shopping for credit recently? If a consumer has been shopping for a car or mortgage – all inquiries that occur within a 30 day period will be considered as only one inquiry to Beacon. Beacon realizes the difference between a habitual shopper and a consumer shopping for the best interest rate.

MINIMUM SCORING CRITERIA – Beacon will not score a Credit Report with the following:

A deceased indicator on file

Safescan Warning

“File under Review”

A file with no tradeline

No updated tradelines in the last 6 months. (Beacon is unable to predict the future if it can’t see how a consumer has paid their bills in the last year).

Beacon will ignore the following tradelines:

Child support tradeline

Family Support tradeline

Returned check items

Rental Agreement

INVISIBLE INQUIRIES – Inquiries that do not affect the Beacon score:

Consumers requesting a copy of their credit report from Equifax

PRM (Promotional) Inquiries – Consumers receiving promotional credit card offers in the mail.

AR (Account Review) Inquiries – Credit grantors reviewing their customer’s credit file. Companies review their “loan portfolio” in order to determine if they should close the account (if Beacon has decreased) or increase the Credit Limit (if Beacon has increased).

EMP (Employment) Inquiries – Credit report pulled for Employment purposes.

Note: Inquiry de-duping – For a 45 day period multiple auto inquiries are treated as one and multiple mortgage inquiries are treated as one.

TO IMPROVE A BEACON SCORE:

Obtain a copy of your Credit Report. Address any discrepancies with all 3 Credit Bureaus.

Pay your bills on time. Delinquent payments on mortgages, automobiles, and national credit cards can have a major negative impact on a Beacon Score.

Pay down high outstanding balances. Keep balances low on unsecured revolving debts like credit cards. High outstanding balances can affect a score negatively.

Do not take on new debt. Apply for and open new credit accounts only as needed.

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Recent Comments (4 total):

rwheels - Aug 18, 2009 4:16 am

Thanks for the guide , the simple way to improve your credit score is pay your bills on time

willcya - Jul 4, 2008 2:33 pm

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tacomadude - May 9, 2007 8:46 pm

Good guide. One question, though. I work in powersports F&I, and I was told at an Equifax seminar that there is indeed a difference between a paid and unpaid collection. I am not sure of the exact weight or factor given to each, but they said that a paid collection does not have as much negative impact as an unpaid collection. Also, as a FYI to readers, most auto dealers & auto loan lenders use what's called an "auto industry option" of the normal credit score. For Equifax, their latest model is called the Beacon 5.0 Auto. The auto credit scores pay particular attention to past credit performance on auto loans, supposedly with a higher weight given to installment loans. That is why, for example, if you have a poor revolving (credit card) history, but you have never been late on an installment loan (auto loan, mortgage, student loan), your Beacon 5.0 Auto score may be considerably higher than a normal Beacon. As far as I know, the auto scores are not available to the public. That may be why, when car/truck shopping, your score is different than what you may have pulled up on the internet. Hope that helps.

kirstie_h - Mar 27, 2007 6:40 am

Thanks for posting this info - VERY useful to understanding where those numbers come from.