What Is a Beacon Score?
A Beacon score is one of many credit scoring models developed by FICO, the major company in this field. Originally often referred to as an Equifax Beacon score, it is now simply branded as a FICO score. For instance, a Beacon 5.0 score is currently known as a FICO Score 5 and is widely used in the mortgage industry.
Key Takeaways
- The Beacon score is a credit scoring model developed by FICO.
- Rebranding has led to it being known simply as a FICO score.
- FICO scores are based on information collected by the three major credit bureaus: Equifax, Experian, and TransUnion.
- VantageScore is a FICO competitor developed by the three bureaus.
How FICO Credit Scores Work Today
The three major credit bureaus—Equifax, Experian, and TransUnion—compile information on individuals’ credit habits in the form of credit reports. This data is then utilized to calculate a credit score using various methodologies. The score, typically between 300 and 850, indicates a person’s creditworthiness. The higher the score, the more creditworthy they are.
Since its introduction in 1989 by the Fair Isaac Corporation, the FICO score has seen numerous revisions to enhance its precision and predictive capabilities. Alongside the Beacon score, another early model, the Pinnacle score, was rebranded as FICO Score NG (NextGen).
Lenders and various businesses may still use older models they are familiar with, alongside specific models designed for their sector. Thus, most individuals will have multiple credit scores rather than a single one. For example, Equifax offers over 13 different FICO scores, including the popular FICO Score 8 and newer versions like FICO Score 10 and FICO Score 10T.
Industry-specific models include FICO Score 5 for mortgage lenders, FICO Auto Score for car loans, and FICO Bankcard Score for credit card issuers.
While Equifax, Experian, and TransUnion continue to issue FICO scores, they jointly created a competitor called VantageScore in 2006. VantageScore 4.0, its latest iteration, was launched in 2017. Like FICO scores, VantageScores range from 300 to 850 but have different criteria for calculation.
How to Improve Your Credit Score
Both FICO and VantageScore weigh various factors in consumers’ credit reports. FICO’s weightings generally include:
- Payment history: 35% - Your history of timely or missed payments.
- Amounts owed: 30% - Total owed relative to credit available, known as your credit utilization ratio.
- Length of credit history: 15% - Older accounts are more favorable.
- Credit mix: 10% - Use of different types of credit like loans and credit cards.
- New Credit: 10% - Recent new debt can be a red flag.
While weightings might slightly differ across models, maintaining good credit habits like timely payments, a low credit utilization ratio, and retaining older accounts is crucial for a good score.
How Can You Find Out Your Credit Score?
You can get your credit score from banks and credit card issuers for free. Several websites also offer free credit scores. However, note that you likely have multiple credit scores, which may differ from the one used by a lender during a loan application.
How Can You Obtain Your Credit Reports?
You’re entitled to a free credit report from each major bureau once a year through AnnualCreditReport.com. Errors found can be disputed, and the bureau must investigate and respond.
Aren’t All Three Credit Reports the Same?
No. Credit bureaus receive information from various creditors. Since not all creditors report to all three bureaus, your reports and consequently your scores, may differ.
What Is a Good Credit Utilization Ratio?
Generally, a lower credit utilization ratio is better. Aim to keep it at or below 30%.
The Bottom Line
Credit scoring models and their branding may have evolved, but maintaining good credit habits like paying on time, keeping a low credit utilization ratio, and retaining old accounts ensures a good credit score.
Related Terms: Credit Score, FICO Score, VantageScore, Credit Report, Credit Utilization Ratio.
References
- myFICO. “FICO Scores Versions”.
- VantageScore. “About VantageScore”.
- VantageScore. “VantageScore 4.0 User Guide”, Page 3.
- Equifax. “Are FICO Scores and VantageScore Different?”
- Consumer Financial Protection Bureau. “How Do I Dispute an Error on My Credit Report?”
- Equifax. “What Is a Credit Utilization Ratio?”
