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Posts Tagged ‘what is beacon score’

But My Credit Score is Over 700!! I Thought That Was Good Credit!

Saturday, September 26th, 2009

This is a complaint that I hear from people from time to time. They pull their own credit score, see a number over 700 and assume that they have good credit. Then, when they talk to me, I tell them they likely won’t qualify for a mortgage due to credit history and they nearly fall off their chair.

The media has done a good job of getting out there what a good credit score is. 700 as a “beacon score” is, by all accounts, a very good score. However, there are two other elements to credit that need to be looked at other than the score:

1. Credit Depth

2. Credit Breadth

CREDIT DEPTH:
This is where a lender looks at an account and sees how long you have had a credit record. If you only have 4 months history with your only credit card, your score may be 750 but that is meaningless. We call this a “forced beacon,” and lenders want to see a long track record of good payment, not just a high number.

CREDIT BREADTH:
This refers to the number of credit accounts you actively hold. Having multiple accounts doesn’t hurt you! In fact, look at it this way: if you have 1 visa account, and you go on vacation and miss a payment, you are delinquent on 100% of your available credit facilities. However, if you have a visa, mastercard, and car loan, and you slip up on one payment, you still have other unblemished accounts to bolster your score. So, having multiple types of credit is also helpful: car loan, visa, mastercard, etc… Now, there is a limit here: too many, and you may screw up as management of the accounts becomes difficult, but too few, and one slip up will have that 700 score down to 530 before you even realize you are late.

Just having a high score isn’t enough, and people often get hung up on the number rather than the underlying credit, and you can be sure, the lenders look at more than just the number.