Credit rating is one of the most important figures for an individual. There are three leading scores that may be considered by money lenders before lending money to someone. Let us begin with understanding the definition of a Beacon score , and relate it with other scores.
A beacon score is determined through complex algorithms for ranking someone’s credit worthiness. It tells lenders about the borrower’s loan repayment capability. The algorithms are designed considering various criteria such as late payments, new credit applications, credit types and so on. BEACON is actually the name of trademark software owned by Equifax. Its scoring programs are available in many versions such as BEACON 96, BEACON Auto Enhanced, and BEACON 5.0.
Other Credit Scores
Scores yielded by each of these programs turn out to be different from one another even if the credit report source data happens to be the same. Similarly, TransUnion and Experian have their own trademark scoring programs yielding the Empirica or FICO score respectively. Basically, the algorithms used by all of these agencies are almost the same. Hence, FICO, Empirica and Beacon scores are just variants of someone’s credit score, depending on the agency from whom the credit report data has been sourced. Empirica 95 and Classic FICO are the respective older versions of Empirica and FICO.
The three credit reporting agencies do not share their data with each other. Hence, differences in data representation, different sources of inquiries and differences in companies reporting to them lead to variations amongst all these scores. Also, all of these scoring models have subtypes as well. These subtypes have been customized for fitting the needs of that particular credit agency. For instance, there are different versions for bank cards, personal finance, automobile financing, and installment loans.
As can be seen, inquiries are not reported in credit reports of all three agencies because of erroneous entries and different sources. Hence, one must periodically ask for their credit report from all the three agencies so that scores can be compared and inaccuracies can be corrected.
Today, credit worthiness is increasingly determined on the basis of risk-based scoring for predicting the likelihood of someone repaying outstanding debts. Most of these scoring models are being replaced by the NEXTGEN scoring model according to which Experian, Equifax and TransUnion shall be marketing their scoring programs as FICO Advanced Risk Score, Pinnacle, and Precision respectively. The credit score categories and their percentage importance adopted in these models may be different from the earlier models too.