Your credit score is a three-digit number that represents your financial habits and behavior. Most lenders use credit scores, among other factors, to determine if borrowers are qualified for the financial products they offer. Credit scores can vary widely from person to person, but it’s common for people to have a tier 1 or tier 2 credit score.
When looking for loans or lines of credit, it’s essential to know and understand your credit score so you apply for the appropriate products. Here, you will learn more about FICO scores, how to identify your credit score tier, and how to achieve top-tier credit if that is your financial goal.
What Is a Credit Tier?
A credit tier is a way of organizing consumers and their credit scores. The most common ways of organizing credit scores are in credit tiers or ranges. When it comes to tiers of credit, there are four, with tier four being the lowest and tier one being the highest tier. Here is a breakdown of the credit tiers:
- Tier 1: 800 – 850
- Tier 2: 799 – 670
- Tier 3: 669 – 300
- Tier 4: beginning score of 300.
When it comes to credit ranges, scores are broken down even more specifically. Organizing credit score ranges would look like this:
- Exceptional: 800 – 850
- Very Good: 740 – 799
- Good: 670 – 739
- Fair: 580 – 669
- Poor: 300 – 579
What Is Considered a Good Credit Score?
Credit scores are set between a range of 850 to 300. 300 is the credit score borrowers typically start out with. As people open and use financial accounts such as bank accounts, loan accounts, or credit card accounts, their credit score will either go up or down depending on their behavior.
Having a perfect or excellent credit score would put you at a score somewhere around the 800s. However, don’t be discouraged if your score isn’t flawless; having a score in the 700s or upper 600s is still considered good.
How To Raise Tier 2 Credit Scores
Want to try and raise your credit score to a higher tier? If this is your goal, it’s important to understand the factors that go into determining your credit score. Credit bureaus will look at the following categories when compiling your credit report and credit score:
- Payment history (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- Recent hard credit inquiries (10%)
- Credit mix (10%)
By making positive changes in each of these financial categories, you should start to see a significant improvement in your credit score over time. Check out the tips below to begin your journey towards tier 1 credit!
Make Your Payments on Time
Making payments on time is a must if you want to raise your credit score. History of payments makes up 35% of a borrower’s credit score, which makes it the most influential factor that contributes to credit. To make sure you are making payments on time, set up reminders in your phone or on your calendar. You can also sign up for autopay to ensure you are making on-time payments each month.
Pay More if Possible When Paying Off Debt
As you make your monthly debt payments on time, consider paying more than just the minimum amount due. With most forms of debt, lenders will charge an interest rate based on the amount a borrower owes. The less your balance is, the less you may pay in interest rates. So, by paying more towards your debt each month, you can end up saving money and paying off your debt faster!
Avoid Applying for New Loans or Credit Cards
Each time you apply for a loan or credit card, your credit score takes a small hit. While you may see your score only drop five points or so with each credit inquiry, these can add up quickly. Avoid an unnecessary decline in your credit by only submitting credit applications when it is absolutely necessary. Before you apply for funding, ask yourself the following:
- Do you have enough money in a savings account to cover your expenses?
- Can you organize your budget and spend more responsibly to make room in your finances?
- Do you have a trusted friend or family member who would be willing to lend you money interest-free?
- Would you be willing to get a part-time job or have a garage sale to earn the money you need for your expenses?
What Kinds of Loans Are Available With a Tier 2 Credit Score?
What types of financial products are available to borrowers with a tier 2 credit score? Check out some of the most common loan types for people with mid-range credit below.
Many credit card companies offer financing to individuals of all credit types. However, the interest rates and credit limits you may qualify for will vary depending on your credit. The higher your score, the more funding and lower rates you are likely to receive.
Personal Installment Loans
Personal installment loans are one of the most versatile funding types available. The credit score you need for personal loan approval depends on a few different factors. For example, if you have a reliable source of income, you may receive approval for a higher loan amount even if you have less than perfect credit.
Auto loans are a type of funding that helps pay for a new car. Like credit cards, the credit limit and interest rate you receive on an auto loan will depend on credit.
Payday loans are a type of short-term financing. Financial emergencies often leave people of all credit types thinking, “I need a payday loan immediately.” However, this may not be the best choice. While payday loans are quick and easy, they can also be extremely inconvenient and leave the borrower feeling financially overwhelmed.
Benefits of Having Better Credit Scores
Why are high credit scores so great anyway? Check out the benefits you can enjoy when you work on building your credit!
More Loan Products To Pick From
The higher your credit score, the more financial products you will have access to. Borrowers with lower scores may only have access to bad credit loans or notoriously unreliable funding like payday loans. As your credit goes up, you’ll find more funding opportunities you are qualified for!
Higher Funding Amounts
One of the best advantages of boosting your credit score is being qualified for higher loan amounts. Borrowers with high credit are typically considered low risk, so lenders feel more comfortable extending higher funding amounts.
Favorable Loan Terms
Another great perk of having a high credit score is the opportunity to receive more favorable loan terms. When your loan terms are designed with you in mind, you won’t have to worry and stress each month when it’s time to make your payment!
Lower Interest Rates
One of the most impactful aspects of a loan is the interest rate. Interest rates can play a big role in determining how long a borrower will take to pay back a loan, as well as how much they will end up paying for their funding overall.
Borrowers who have a higher credit score are typically rewarded by receiving lower interest rates on a loan. If you already have a loan from before you started improving your credit score, you may be able to refinance for a better rate in the future.
How Often Should I Check My Credit Report?
Consumers are entitled to one free copy of their credit report from each of the major credit bureaus at least once a year. But, you may want to check your credit reports more often than once a year, especially if you are working toward improving your score.
You can usually access your FICO score and unofficial credit report for free whenever you like via an online bank or credit card account. While these free reports are technically unofficial, they still contain virtually the same information lenders, and financial institutions receive when they request an official report.
The Bottom Line: Tier 2 Credit Scores
Having a tier 2 credit score means you are doing just fine financially, but there is room for improvement. By making slight adjustments to your spending habits and behaviors, you could see yourself moving from tier 2 to tier 1 credit in just several months!