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Understanding the Beacon credit score

04 April 2019 by National Bank
Understanding the Beacon credit score

The Beacon score is a three-digit credit score that varies according to the information in your credit report. Its name may differ among the various credit-rating agencies, but all of them use the same mathematical algorithm (FICO). 

In Canada, Equifax and TransUnion Canada are the two credit-rating agencies. They sell your credit-rating information to financial institutions, companies and merchants that make decisions based on your credit score.

The Beacon score is ranked on a scale from 300 to 900, the latter being a perfect score. Equifax considers a score of 760 or higher as excellent., while a number between 700 and 759 is very good. A number below 560 is deemed weak.

Therefore, the higher your score, the better your odds that a financial institution will give you what you want on favourable terms. While your credit score represents your solvency from a banking perspective, it can also help or hurt you when you rent an apartment or purchase a car or a house.

Here are the factors that may influence your Beacon score to different degrees, and some tips for improving your score:

Payment history

This has the greatest impact on your credit score. Among other things, it takes into account the payment dates for your invoices, and the debts you have not reimbursed. Depending on the items involved, some payments made on a due date will not always be flagged; however, late and missed payments are always recorded. Accordingly, you should always strive to make your payments within the allotted time period, and even a few days in advance, if possible.

Use of available credit

This is the next most important factor. Credit-rating agencies take into consideration what fraction of the total credit available to you—through credit cards, lines of credit and other loans—that you use. The higher the proportion of your available credit you use above a certain threshold, the greater a financial risk you are perceived as, even if you tend to pay your balances owed on time. It is recommended that you keep this proportion of credit use below 35%.

Duration of previous credit

The longer you maintain an operating line of credit, the better your score. Conversely, a recently opened line of credit will have a lower score. Think twice before closing out a credit card account or a line of credit, especially if you do not pay an annual fee to maintain it.

Number of requests for credit

Every time you apply for credit, the information contained therein is entered into your credit report. A string of applications may signal that you are actively seeking funds or that you manage your assets poorly. It is recommended that you group your applications within a relatively condensed period of time, for instance, when you are shopping for a car. Note: a request for your Beacon score does not affect it.

Types of credit

The different sources of credit at your fingertips is taken into consideration. It is preferable to have a number of credit instruments rather than just one. For instance, having only a single credit card may result in a lower score. Of course, what matters most is your ability to properly manage your credit, regardless of the number of products you have.

In conclusion, do not wait until you have a specific credit need to consult your credit report. Consulting it is the first step toward maintaining or improving your credit score.

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