Credit Beacon Vs “Good” Credit

On a deal I am working on, one of the borrowers stated that they have “Good Credit”, as their credit beacon is over 700. I thought it would make a good blog post.

Most “A” and “Alt-A” lenders have minimum credit beacon scores to obtain financing on various of their products. For example, a bank might state in the product description for its “Fixed 5-Year Conventional” mortgage, “Minimum Beacons of 680 for all Borrowers”. For an “Alt-A” lender, the requirement might be “Minimum 650 Beacons for all borrowers.”

Even Alternative Lenders use beacon scores as guides to their various products. For example, if you have a beacon score in the 400’s they might only lend as a first mortgage, and at a higher interest rate. Whereas the same lender might lend on a second mortgage or a HELOC with a beacon in the 500’s and up. (And of course private lenders don’t much care at all about beacons – but we have covered that before.)

Often the higher the beacon, the lower the interest rate available. If there is a higher beacon requirement, sometimes a lender will not require as much documentation in relation to income, or Business For Self. If you are just scraping by on the minimum beacons, usually everything else on the deal has to be pretty much perfect – stable income totally verified, low loan to value, no rental income in the mix, etc.

But the credit beacon is only half the story – there is a “qualitative” aspect to the credit bureau, that goes beyond the “quantitative” beacon score. You should consider a particular beacon score to be an indicator of your credit, not the definitive indicator.

For example, I have seen credit beacons of 700 for a person currently in Consumer Proposal! So the beacon itself would not absolutely prevent even a bank from lending

– but with a Consumer Proposal, what bank would even consider the deal?

And there are many such “qualitative” components to credit bureaus, that affect the willingness of Banks, “A” & “Alt-A” Lenders, Institutions to do a deal. Consumer Proposal, Collections (Paid & Unpaid), Judgements, Garnishments, Credit Cards Closed by Credit Grantor, Thin Credit (Lack of Active Lines), Poor Payment History on Mortgages, Poor Payment History on Credit Cards, Etc

So even though your credit beacon is officially in the “Good” Category – the other entries on the credit bureau can tell a different story, and bump you from the “Good” level.

The best thing to do is pay your bills on time. If you have not paid your bills on time and wish to clean up your credit – please call me, and let’s discuss a refinance.

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