What Is Tier 1, 2, 3 Credit Score | 2022 Guide

You will need to disclose your credit score information for some loans, including auto loans, which is why it matters whether you are tier 1, or tier 2 and tier 3 borrowers.

A tier credit score is used for the classification of borrowers, from most likely to borrowers that are less likely to pay off their loan promptly.

Understanding tier credit scores can help you get the best possible offer in case you are taking a loan. 

This article will go through what is a tier 1, 2, 3 credit score and what are the advantages of having tier 1 credit so you can have all the information required about tier 1 credit score.

What is a tier 1 credit score?

Tier 1 credit score is a classification of borrowers that rank a borrower as most likely to pay off the debt. Tier 1 credit is the highest credit rank that is achieved by clean credit history.

Borrowers with tier 1 credit can easily apply and get approved for a loan, while they may be asked for minimum information when applying as their credit score speaks in favour of their potency to pay off their loan.

In case you are a tier 1 borrower, dealerships may only ask for your basic information, while banks may still want you to disclose tax return information.

Either way, tier 1 credit borrowers are most likely to get approved for any type of loan thanks to tidy credit history.

What credit score do I need for tier 1 credit?

Credit tier requirements may vary from one lender to another while many direct and individual lenders may classify borrowers as tier 1 credit from a FICO score of 700.

Typically, you will need a score from 750 to 850 to qualify as a tier 1 borrower and get the best rates and longer repayment periods.

Tier 1Credit scores are typically from 750 to 850
Tier 2Credit scores are typically from 640 to 690
Tier 3Credit scores are typically from 581 to 639

Some lenders may lower the credit score criteria for accepted credit tiers, so borrowers can be ranked as tier 1 credit from the 700 FICO score. 

What are examples of tier 1 credit scores?

As a tier 1 credit score borrower, you are considered the most creditworthy class of borrowers. Tier 1 credit borrowers have excellent credit, which means that they have the greatest credit scores, usually 700 the least on average.

The tier 1 classification can vary from one lender to the next, however, the minimum credit score for tier 1 credit is usually set between 720 and 730. Tier 1 is also known as “tier A +” credit.

Borrowers with tier 1 credit are usually granted the best conditions and the most favourable rates on personal loans, leases, credit cards, and auto loans thanks to higher credit scores.

In case you are a tier 1 credit borrower, you may not be asked for collateral in most cases, while the documentation you may be asked to disclose when borrowing money may be minimal.

Some lenders may set a minimum of 750 for a tier 1 credit score, while the minimum credit score requirement usually doesn’t go below 700.

How does tier 1 credit work?

Tier 1 credit is affected by your credit score but can also be influenced by other important factors such as debt, your income, and assets that are integral to the extent of affecting your credit score ranking.

Lenders tend to group and classify borrowers into tiers, to help them determine appropriate rates, conditions, repayment period, the amount of loan, and financial eligibility. Borrowers are classified into tier 1, 2, and 3 credit.

Tier 1 credit score can help you qualify for a loan that offers lower interest rates and longer repayment periods, while financial institutions, direct lenders, and banks find this tier group the most likely to get approved for a loan with minimal documentation.

Minimum tier 1 credit score can vary from one lender to another, while the minimum may be set between 700 and 750 credit scores. Depending on the lender credit score of 700 can fall into tier 2 credit.   

Advantages of tier 1 credit

There are many advantages of being a tier 1 credit borrower when applying for a loan or other types of financing options. Some of the greatest advantages of being a tier 1 borrower are:

Lower interest rates

One of the biggest advantages of borrowing with tier 1 credit is the possibility to get lower interest rates in comparison to borrowers with lower tiers. Your tier credit speaks in favor of your potential and financial potency to repay your debt on time, which is why you may be granted far lower interest rates on your loans.

More financing options

When you have a tier 1 credit score, more lenders will be ready to grant you any type of loan you may want to apply for. Borrowers with tier 1 credit have more chances to get approved with various lenders, which grants them the needed flexibility to choose between the best options for getting a loan.  

More affordable monthly payments

With lower interest rates and more financing options, tier 1 credit borrowers can also become eligible for more affordable monthly payments. Since tier 1 can qualify for longer repayment periods with lower monthly payments and lower interest rates, monthly payments become more affordable.

Longer repayment periods

While tier 2 and 3 borrowers are usually granted short-term loans with short repayment periods, tier 1 borrowers can qualify for extending their repayment periods from months to years, which also makes the monthly payments lower and more affordable.

More affordable loans

When lower interest rates are combined with longer repayment periods and more affordable monthly payments, tier 1 borrowers essentially qualify for more affordable loans that don’t necessarily place a strain on their monthly budget.

How do you get a tier 1 credit score?

You can get a tier 1 credit score by being responsible for your credit, debt, and repayments in general. Tier 1 credit score borrowers are responsible for their credit, which is why most lenders qualify this class of borrowers as eligible for any type of loan.

As a tier 1 credit borrower, you have no to low credit card debt and have paid off your previous loans regularly. In case you want to boost your credit score to tier 1, you should:

Keep low credit card balances

Pay attention to your credit card limit and make sure you are not overusing your credit card balances. The lower your credit card balances are and the less you use your credit card, the more likely are to qualify for tier 1 credit class.

In case you are struggling with credit card balances, try to pay off your credit balances below 50% to qualify for a tier 1 credit score.

Make payments on time

You need to make all your payments on time to become a tier 1 borrower, which includes all your utility bills as well.

This is the most important step towards reaching a tier 1 credit score. In case you have late payments, your credit score may be negatively affected, which is why we advise you to pay within 29 days from the due day.

Late payments will affect your credit score negatively for seven years, which is why it is important to make payments on time. In case you have some late payments, make sure to check if the seven years mark ended before applying for a loan.

Have a long credit history

Long credit history is also an important factor in being classified as a tier 1 borrower. Even though you may want to close your old accounts due to bad credit history, it is recommended to try and improve your credit score by making payments on time and keeping low credit card balances rather than closing your accounts.  

How does the credit tier affect payments?

Banks, financial institutions, and independent lenders classify borrowers into credit tiers as a part of the risk-based pricing where low-risk and high-risk borrowers are determined when applying for a loan.

Your credit tier affects your loan payments when it comes to interest rates. Tier 1 credit borrowers who have between 750 and 850 get more affordable rates with lower interest in comparison to tier 2 and 3 borrowers who have higher payments on their loans due to higher interest rates.

Just like your credit tier affects your payments, your payments can also affect your credit tier. In case you are making regular payments following your repayment period and terms of the loan, your credit tier can rank as 1.

In case you are running late with your monthly payments, you can rank lower to tier 2 and 3, which will make it more difficult for you to get a loan with low-interest rates in the future.  

What is my credit tier based on?

The credit tier is based on the FICO score. FICO score is expressed in a three-digit number ranging from 300 to 850.

Virtually, 300 is the lowest FICO score, however, likely anyone has a score that low, which is why any score below 580 is considered a bad credit score.

The digits are expressed based on your credit and financial history, while you can always move up or down to lower tiers.

Various credit scores are classified into three tiers, where tier 1 is the highest rank and tier 3 is the lowest.

From 300 to 579Very Poor
580 and belowPoor
580 to 669Fair
670 to 739Good
739 to 799Very Good
800 to 850Exceptional

What is a tier 2 credit score?

Tier 2 credit is a classification score for borrowers who have FICO scores typically between 640 and 690 on a scale from 300 to 850.

Tier 2 borrowers have a good credit score in comparison to tier 1 who usually have very good or exceptional credit.

Tier 2 borrowers have as nearly as many financing options as tier 1, however, tier 2 may not be offered the lowest interest rates.

Tier 2 credit can still help you be approved for all types of loans although higher interest rates may apply. Still, tier 2 borrowers can be approved for more favorable loan terms than tier 3 borrowers.

What is a tier 3 credit score?

Tier 3 credit score is a classification of borrowers with FICO credit scores that usually ranges between 581 and 639, although with some lenders, tier 3 requirements may be lower or higher than an average range.

Tier 3 credit score borrowers have fewer financing options than tier 1 and 2 borrowers, while tier 3 also gets the highest interest rates when approved for a loan. Tier 3 credit borrowers usually have problems with making monthly payments on time, repaying their debt, and paying their bills on time. 

As tier 3 borrowers are classified as high risk, lenders apply high-interest rates and may ask for collateral, while some loans may not be offered to tier 3 borrowers.

As a tier 3 borrower, you may also need to provide more extensive documentation when applying for a loan.

Do my loans affect my credit tier?

Your loans can affect your credit tier, negatively and positively, depending on several factors. In case you are repaying your loan on time and are making sure that you are respecting your repayment period, your credit tier is affected positively.

In case you are later with payments and are having trouble repaying your loans through regular payments, your credit tier may be demoted from tier 1 to tier 2 and 3.

Tier 3 borrowers are often declined for a loan with many lenders, while they get the highest interest rates when approved.  

Also read:

What is a credit score?

What is a coaf?

What is a derogatory mark?

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