Inside Beacon Scores
There are five components of a Beacon (FICO) score. On-time payment of bills counts for the most (35 percent of the total score). Payments more than 30 days late count off heavily. Another 30 percent is based on total debt. Excess debt for a person's income lowers this part of a Beacon score. The type of debt matters as well (10 percent of the total). Secured debt is best. Too much unsecured debt (like credit cards) lowers the score. The amount of time you have used credit responsibly is a factor that counts 15 percent. The last component is how often you apply for credit or close accounts (10 percent).
Credit Killers
There are several things that affect several parts of a Beacon score and will drastically lower the overall score. Foreclosure, defaulting on a debt (especially a student loan), tax lien, or having a court judgment against you for an unpaid debt all stay on a credit record for years. That's also true of a bankruptcy. However, a bankruptcy puts you in a special category as far as credit is concerned and your use of credit following the bankruptcy matters most in restoring a good credit score.
Monitoring Beacon Scores
A study by the Public Interest Research Group in the early 2000s found that over 70 percent of all credit histories contain some inaccuracies and that over a quarter are serious enough to cause credit to be denied. A Beacon score is based on the individual's credit history, so it's vital to monitor your credit history on a regular basis. It's not necessary to pay for your credit history because you are legally entitled to a copy from each of the three major credit reporting agencies annually. The Federal Trade Commission authorizes only one provider for the free credit reports, AnnualCreditReport.com (see Resources).
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