What is a Beacon (Pinnacle) Score?
Beacon Score, developed by the credit bureau Equifax, is a credit scoring method designed to provide lenders with deep insights into an individual's creditworthiness. It later evolved into the Pinnacle Score. Beacon Score is determined using a complex algorithm. These numbers give lenders an understanding of a borrower's credit history and their potential ability to repay the applied debt.
Key Points
- The Pinnacle score is a credit scoring method developed by Equifax.
- The specific algorithm is strictly confidential, but factors such as credit history, late payments, and available credit can affect the score.
- A higher credit score suggests to lenders or other institutions that the borrower has a lower credit risk, while a lower score may limit the borrower’s access to credit or increase borrowing rates.
- Repaying debts, maintaining credit utilization below 30%, and minimizing the number of inquiries on the report can help improve the Pinnacle score.
- Each credit bureau has its own algorithm based on the original FICO scoring method.
Understanding the Beacon (Pinnacle) Score
Pinnacle Score is a credit scoring method used by Equifax to provide lenders with a credit score derived from a hard credit inquiry.
The three major credit bureaus—Equifax, TransUnion, and Experian—each have different methods for calculating credit scores. A credit score is a numerical value, usually between 300 and 850, representing the borrower’s level of risk.
Lenders consider users with higher credit scores to be at lower risk, meaning these users have a reliable record of repaying loans on time. Most lenders view borrowers with credit scores of 700 or higher as having good credit history.
Lenders determine the eligibility range for borrowers based on their credit scores. For instance, many mainstream lenders would reject credit applications from borrowers with scores below 700. Although lenders might consider other details in the borrower’s credit report, the credit score typically plays a central role.
Historical Background
The earliest FICO scores were created in 1989 by Fair, Isaac and Company, aiming to standardize credit scoring methods. Prior to this, lenders used their own systems to create scores, which led to wide discrepancies where the same user might receive contradictory results from different lenders.
The push for standardization helped create the three major credit bureaus known today: Equifax, Experian, and TransUnion. Each bureau has its scoring method, with the Pinnacle score being the method used by Equifax.
How to Improve Pinnacle Score
The first step to improving a credit score is to request a credit report from Equifax. This ensures that the Pinnacle score is not affected by false information, such as debts already paid off or not recognized.
Once all information on the credit report is verified as accurate and up-to-date, the next step is to address any outstanding bills and late payments. The two factors that most significantly affect the Pinnacle score are payment history and credit utilization.
Credit utilization refers to the amount of credit currently in use. If a credit card has a limit of $1,000 and $700 has been used, the credit utilization rate is 70%. Lenders may view this as too high. Repaying credit cards and ensuring a credit utilization rate below 20-30% will help improve the Pinnacle score.
Another way to enhance the Pinnacle score is by settling outstanding debts. If unable to pay the full amounts, contact the lenders or collection agencies to negotiate a lower amount. If the lender refuses any amount lower than full payment, devise an affordable payment plan that does not jeopardize other bills.
Lastly, to prevent the Pinnacle score from dropping further, users can limit the number of credit accounts they apply for. When applying for new loans or credit cards, lenders will obtain credit reports from one or all of the three major bureaus, known as a hard credit inquiry. Too many hard credit inquiries can negatively impact the score, as it suggests to lenders that the user is financially distressed.
How to Calculate Beacon (Pinnacle) Score
Each credit bureau has its algorithm, and lenders can make credit decisions based on their preferences when performing hard inquiries.
While the exact method used to create the Pinnacle score is a closely guarded secret, almost all credit scoring methods consider factors such as late payments, current debt, the length of time accounts have been opened, types of credit, and new credit inquiries. Depending on the type of credit being applied for and the lender's relationship with the credit reporting agency, different versions of credit scores may be requested. Some lenders may primarily work with a single credit bureau, while others compare scores from the three primary providers.
The credit score analysis conducted by lenders as part of their credit application evaluations is part of their customized underwriting process. The service agreements between lenders and credit reporting agencies outline the terms of collaboration and specify costs for hard credit inquiry reports and other services.
Equifax Credit Scoring
Depending on the type of loan being requested, Equifax provides lenders with different versions of Pinnacle and Beacon scores. Within these categories, there is a range of methods, including Beacon 5.0 Basic, Beacon 5.0 Auto, Beacon 5.0 Bankcard, Beacon 09 Basic, Beacon 09 Auto, Beacon 09 Bankcard, Beacon 09 Mortgage, Pinnacle 1, and Pinnacle 2.
Lenders working with Equifax for credit scoring reports gain a comprehensive understanding of how each credit score is calculated and the differences between various versions. Lenders can request specific types of credit scores from Equifax depending on the type of credit being considered for borrowers.
Pinnacle Score FAQs
What is the difference between Beacon (Pinnacle) and FICO Scores?
FICO scores are the earliest credit scores created in 1989 by Fair, Isaac and Company, aiming to standardize credit scoring methods. On the other hand, Beacon and Pinnacle scores were later developed by Equifax as derivatives of the original FICO scoring method.
What is the average Beacon Score?
While there isn’t publicly available data on the average Beacon or Pinnacle score, Experian reported that the average FICO score in the US for 2020 was 711.
Why are there three credit bureaus?
Before the earliest FICO scoring method was created in 1989, lenders used their own methods to evaluate a user’s credit, leading to significant scoring variances. The push for standardization helped establish the three major credit bureaus known today: Equifax, Experian, and TransUnion. This helps to normalize credit scoring, as lenders typically use one or all three credit bureaus when obtaining a borrower’s credit report, instead of creating their own scoring methods.
