Beacon Credit Score? What’s That And How Does It Relate To FICO?

A person’s credit score can make the difference between getting a lower interest rate on a loan or having to pay a higher interest rate that can cost several thousand dollars over the life of the loan.

What’s A Beacon Credit Score?

The Beacon Credit Score, distributed by the credit reporting agency Equifax, uses the same algorithm used to generate the FICO score, according to Investopedia.   Not to be outdone, the other two credit reporting bureaus also name their scores differently even though they too are both based on the same FICO algorithm:  “Precision” by TransUnion and “Fico Advanced Risk Score” by Experian.  To make things even more confusing, Equifax recently started selling the Pinnacle Credit Score in place of the older Beacon Credit Score, even though they are pretty much the same thing.

The FICO score was developed by the Fair Issac Corporation as a means by which mortgage lenders and others could determine creditworthiness at a glance.  Despite the confusion caused by all the naming differences, myFico.com is still the quickest and easiest way to buy your credit score inexpensively.  Unless there’s something specific listed on one of your credit reports that isn’t listed on the others for some reason, I don’t see a reason not to buy your Fico Scores/Reports directly from the source.

Credit Score Basics

One’s Beacon credit score (aka Pinnacle aka FICO) may be used by lenders and credit card companies in making decisions about granting credit or to decide what interest rate should be charged based on credit history. According to myFico.com, “a 100 point difference in your FICO score could mean over $25,000 in extra interest payments over the life of a $300,000 home loan.” Credit scores are increasingly being used by employers in making hiring decisions; by landlords, and insurance companies and others.

The FICO score is determined using a special formula, but generally the scoring system is based on percentages related to various aspects of credit history. Past credit history determines approximately 35 percent of the FICO score. This includes late payments, recent late payments and accounts turned over to collection agencies. How much one owes, the number of accounts with balances and the amount of credit determines 30 percent of the FICO score. The length of credit history contributes to 15 percent to the score. The amount of new credit counts toward 10 percent and the types of credit accounts make make up the final 10 percent of the credit score.

FICO scores range from 300 to 850. Those with scores in the 700 range or higher will get the best interest rates (practically nobody has a perfect score). The good news is that even when people have had some credit problems, there are some businesses such as car dealers that used special models to evaluate credit worthiness. In this situation, the lender would look at how well an individual made car payments in the past and that would factor into the decision to grant credit.

Credit scores provide a snapshot of the ability and willingness to meet financial obligations. However, other issues should be considered. A worker who has been laid off may be unable to make credit card payments since keeping a roof overhead and food on the table are priorities. Under more favorable circumstances, the same person would pay bills as expected. A three digit credit score cannot convey this to a creditor or lender.