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What is a tier 3 credit score

By Sarah R
Modified on February 16, 2024
tier 3 credit

Are you wondering how your credit score can affect different areas of your financial life? Here, you’ll learn all about what people with a tier 3 credit score can expect when it comes to loan approval, interest rates, and payback terms. Furthermore, you’ll find expert tips on things you can start doing today to see an improvement in your credit score in the near future!  

What Does it Mean To Have a Tier 3 Credit Score?

Credit scores are a way for lenders and financial institutions to gauge the creditworthiness of a particular borrower. Credit bureaus gather and maintain information regarding your finances and credit and distribute that information to lenders and other financial institutions upon request. There are three major credit bureaus, they are: 

  • Experian 
  • TransUnion
  • Equifax

Credit scores are broken up into four tiers ranging from about 300 to a perfect 850. 

  • Tier One – Considered exceptional credit, scores ranging from 800 – 850. 
  • Tier Two – Considered very good credit, scores ranging from 740 – 799.
  • Tier Three – Considered good credit, scores ranging from 670 – 739.
  • Tier Four – Considered fair/poor credit, scores ranging from 300 – 669.

In order to have a higher credit score, you must have a long-term established history of financial stability and responsibility. This is why people with good credit are more likely to pre-qualify for loans and other credit opportunities. On the other hand, borrowers with credit scores from a lower tier may have a harder time finding loan approval or may receive a higher interest rate on funding when they are approved. Since low scores are usually associated with missing payments, defaulting, or even bankruptcy, lenders tend to see people with lower scores as a lending risk.

What Types of Lenders Work With People With Tier 3 Credit Scores? 

You may think that there wouldn’t be many types of lenders willing to work with people who have tier three credit, but you’d be wrong! Check out more details on some types of lenders who have a history of working with borrowers with tier two, three, and even four credit below! 

Personal Installment Lenders

You may be wondering, what credit score is needed for a personal loan? Since personal installment loans are such a versatile type of funding, there are products available for people from just about any tier of credit. However, loan details like rates, funding amounts, and payback terms may vary depending on each borrower’s financial situation. 

Lenders of personal installment loans also offer both short and long-term financing options, so borrowers can essentially cater their repayment schedule to fit their individual budgets. 

Payday Lenders

Payday loans are marketed toward people with lower-tiered credit scores as a way to get some extra money while in between paychecks. But, before you jump to the conclusion of, “I need a payday loan immediately,” stop and think of the pros and cons. While payday loans may seem convenient at a glance because of their easy approval requirements and fast funding, they also come with disadvantages that can cause significant harm to your finances. For example, payday loans are known for having extremely high-interest rates and short payback terms. Borrowers who fail to repay their payday loans within about two weeks or less may end up with interest rates that cause their balance to actually increase each month! 

Auto Title Lenders 

Auto title loans, also called car title loans, are a type of loan where borrowers use their vehicle title as collateral to secure their funding. Like payday loans, auto title loans usually come with high-interest rates and brief payback terms. Furthermore, since the vehicle title is used as collateral for car title loans, borrowers risk losing their car should they miss payments or default on their loan. 

How To Improve Tier 3 Credit Scores 

Fortunately, there are steps you can start taking to work towards improving a tier three credit score. Check out some helpful tips below! 

Become Current on Past Due Debt

Any past due balances on bills or other financial obligations can be a great hindrance when it comes to increasing your credit tier. Past due balances may not only prevent your credit score from increasing, but they can also cause you to sink further into debt when you acquire late fees or other delinquency charges. 

To become current on your bills, make a list of all of your regular monthly expenses. Then, identify which bills you are late on, and calculate the total past due amounts. From there, you can contact each lender and discuss a payback plan with them. You may find that some lenders are willing to halt or lower your late fees if it means you being able to become current on your account! 

Create a Payment Plan and Budget for Future Debt

Payment history is the most impactful financial factor contributing to your credit score. Therefore, staying on top of your monthly payments is essential if you want to see an improvement in your credit score. Set a reminder in your phone, or mark a day on your calendar to set aside for paying your monthly bills. Or, sign up for autopay and remove the stress of having to remember to make your monthly payments completely. 

Avoid Additional Credit Applications

Each time you apply for a loan, credit card, or other financial product, a hard credit check goes on your credit profile. Each hard credit check may cause your score to drop up to five points. While this may not seem like such a significant drop, frequent credit applications done within a short period of time may have a larger impact on your credit than you realize. 

To keep your credit intact while you work on improvements, limit your credit inquiries to financial emergencies only when no other options are available. 

Check Your Credit Report Often

To monitor your progress, it may be a good idea to check your credit reports often. People may inquire into their own credit by requesting a soft credit check. Unlike hard checks, soft credit checks have no negative impact on your credit report whatsoever. Staying familiar with your reports also gives you a chance to identify and report errors right away and see how your financial decisions affect your credit in real time!  

Should I Cancel Accounts With Credit Card Companies To Improve My Credit Score?

If you have multiple credit cards, you may be wondering if canceling some of them may be beneficial when it comes to improving your credit. Your available credit card limits are recorded and reported on in your credit reports. For some people, having several credit cards with higher limits may be working towards boosting their credit. 

The more money a borrower has access to in available credit, the more their credit score and credit reports will benefit. People with multiple credit cards who have their balances under control may not want to cancel their cards in order to improve credit. In fact, doing so could have the opposite effect. If you cancel several credit card accounts and your available credit drastically decreases, you may see a drop in your credit score the next time you receive a report. 

But is canceling a credit card bad all of the time? The answer is no! If you have a credit card and find yourself unable to resist the urge to use it and have accumulated a balance that you are having trouble affording, it may be the smartest choice to close your account.

Benefits of Having a Good Credit Score 

Why should you bother trying to improve your credit score? People with improved credit may be able to enjoy advantages like: 

  • Access to a variety of financial products. 
  • Lower interest rates.
  • Higher loan amounts. 

Access to More Financial Products 

As your credit score increases, you’ll have access to the subprime loans you may have considered in the past, as well as a wide array of new products and services! For example, some types of loans, like bank loans, are typically reserved for people with tier-one credit scores. 

You May Qualify for Better Interest Rates 

Unfortunately, a bad credit score can affect your interest rate quite a bit. By improving your credit score, you’ll find that lenders are more willing to offer special perks, reduced interest rates, or even extended payback terms! 

Better Chances of Being Approved for Higher Funding Amounts 

Having a higher credit score means you have an established history of paying bills on time and display other behaviors associated with financial responsibility. By being a lower lending risk, lenders are more likely to approve you for loans with higher credit limits!

The Bottom Line: Having Tier 3 Credit

While you can’t earn top-tier credit overnight, there are steps you can take now to begin your journey towards credit improvement. After you’ve established a healthy credit history, you’ll be qualified for not only more loan products but better payback terms and interest rates as well! 

References:
How Your Credit Score Impacts Your Financial Future | FINRA.org

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