Most people know the importance of their credit reports. They realize that a positive report will help them get loans and open credit card accounts, while one that is filled with negative information will keep them from being able to get credit. However, they are often unaware that many lenders look at their Beacon score to get a "snapshot" view of their creditworthiness. This score summarizes their credit history into a simple three-digit number what carries a great deal of importance in determining whether a lender will give them money or allow them to open an account.
Definition
A Beacon score is a three-digit number that reflects a person's credit history. A larger number indicates that a person has a good history, while a lower number means that they have had some financial problems that are showing up on their credit reports. The latest incarnation is the Beacon 09 score, which reflects a joint venture between the Fair Issac Corporation and the Equifax credit reporting bureau.
Range
The Beacon score can range from a low of 300 points all the way up to a maximum of 850 points. The higher a person's score, the better he appears as a credit risk to lenders who are reviewing the score. Any score over 720 is considered to be excellent, while 700 to 719 would be good. Scores between 675 and 699 are average. A score of 674 or below would be considered in the sub-prime or risky categories. This will impair a person's ability to get credit.
Calculation
Equifax calculates a consumer's Beacon score based on her credit history, primarily over the last 12 to 24 months. However, older information may also be taken into account. Factors that are considered include the number and type of credit accounts held by a consumer, how long those accounts have been open, and the payment history. If the consumer has been trying to open a large number of new accounts, this is also considered. Items like bankruptcies, foreclosures, repossessions, judgments and charge-offs will be taken into account as well.
Use
According to Equifax, the Beacon score is meant to be used by mortgage lenders. However, it can be used by any creditor looking to assess the potential risk in extending credit to a particular consumer, such as car dealers and their lending partners. The lender reviews a person's Beacon score to see whether it is high enough to warrant an extension of credit.
Influence
A consumer may be able to influence her Beacon score by checking her credit reports for any errors. Because the Beacon score is calculated based on her credit history, incorrect negative items will bring it down. Every American is entitled to a free copy of her credit report on an annual basis. If there are errors, they can be disputed by the consumer. If the credit bureau cannot verify the information with the reporter, it must be removed. This will lead to a higher Beacon score.
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