A few days ago, a client came to my desk asking, "A Beacon score? What in the world is that!?"
This client has spent the last few years building his credit through responsible use of student loans, no interest credit cards, and a car loan. He now wants to capitalize on record-low interest rates and purchase a home, but he recognized that by ignoring his BEACON Score he might have missed something that could potentially cost him tens of thousands of dollars over the life of the loan.
Credit scores are a report card for any financial interaction we have, be it applying for a job, an apartment rental, credit cards, or student and home loans. On your report card, there are three FICO scores that let prospective lenders know how much of a risk they might face when lending you money - each score is based on information kept by the three credit bureaus: Experian, TransUnion, and Equifax. The BEACON score is actually one of these credit scores, so it's definitely something you don't want to ignore.
The good news is that if you've been keeping track of your FICO scores, you've been tracking your BEACON score all along.
What is a BEACON Score?
Put simply, a BEACON Score is the the name Equifax has given to the FICO score derived from information contained in your Equifax credit report. In other words, your Equifax-based FICO score is your BEACON score, it's based on the same scale of 300-850, and it's computed using the same 5 categories that comprise any FICO credit score.
35% - Payment History - The most important thing to a potential lender is that they'll be repaid. Your BEACON score therefore puts the most emphasis on whether or not you have ever been late with your bills.
30% - Amounts Owed - Even though you may have paid all your bills on time, having too much outstanding debt puts that repayment history at risk. Lenders looking at your BEACON score like to see an approximate 30 percent ratio for both debt-to-income and credit utilization, or the amount owed on revolving debt compared to the total limit.
15% - Length of Credit History - Understandably so, your BEACON score scale includes how long you've had various accounts. Making one payment on time is great, but making seven years or more of payments on time is what lenders are hoping to see.
10% - New Credit - Have you opened other new credit accounts recently? New accounts can show instability, and applying too many times for new credit can show desperation - risks that lenders may shy away from.
10% - Types of Credit Used - Lastly, lenders like to see that you are well-rounded in the type of credit you can handle, i.e. credit cards, retail accounts, mortgage loans, installment loans, etc.
Now, just because your BEACON score is simply another name for your FICO score doesn't mean these are the only five metrics of concern. While your BEACON score may not include employment history and income, it's important to remember that many lenders will take these factors into consideration when reviewing an application for credit, especially for something like a home loan.
They may also use entirely different scales altogether, so don't be surprised if your lender is looking at a different number than you are. There are thousands of credit scores out there and it would be impossible for you to keep track of them all. Regardless, the best way to keep all your credit scores in top shape, is to always think before you spend and then make your payments on time and in full every month. If you can do that, you've got little to worry about.
