A tier 4 credit score is generally considered lower-tier credit. Those who have fallen victim to predatory funding options, like easy payday loans, or those who have suffered other financial hardships may find themselves with tier 4 credit.
Thankfully it is possible to improve your credit and eventually work your way up to a tier 1 credit score. Here, you’ll learn about the ins and outs of credit scores and how you can start improving your credit report today!
What Are Credit Scores and How Are They Organized?
Credit scores are three-digit numbers that represent someone’s overall financial situation. Once they start interacting with their various accounts, each consumer will receive a credit score based on their financial habits and behaviors. Those who cultivate responsible habits will establish a positive credit history and will then be rewarded with a high-tier credit score. Those who struggle or have difficulty staying on track with their finances may have a lower tier score.
Below is a summary of the credit tier breakdown:
In 1989, the Fair Isaac Corporation introduced the concept of the FICO Score, which laid the groundwork for how we see credit reports and credit scores today.
- Tier 1 Credit: Considered exceptional credit, scores ranging from 800 – 850.
- Tier 2 Credit: Considered a very good credit score, scores ranging from 740 – 799.
- Tier 3 Credit: Considered good credit with scores typically ranging from 670 – 739.
- Tier 4 Credit: Considered fair or poor credit, with scores that can range from 580 – 300.
Information regarding a consumer’s credit score and credit profile is kept by what is called a credit bureau. There are three major credit bureaus, they are:
How To Improve a Tier 4 Credit Score and Your Credit Report
Below are some tips on ways you can build credit and eventually improve a tier 4 credit score.
Work on Improving Payment History
The most important step in boosting a tier 4 credit score is to improve the payment history on your credit report. Making consistent payments and paying bills on time is extremely important to lenders, and having a history of doing so shows them that you are a low-risk borrower.
If you have trouble remembering to make your monthly payments on time, consider setting up an automatic reminder on your computer or smartphone. Then, after you receive the reminder notification, make your payments right away.
You can also take the stress out of remembering to make payments on time completely by signing up for autopay. With autopay, money is taken directly from your bank account and applied to your loan payment. You can even pick the day your autopay goes through.
Pro tip: pick your autopay to go through on a day when you receive a paycheck from your employer to ensure you don’t accidentally overdraft your bank account.
Avoid Applying for Unnecessary Credit
Signing up for any kind of loan is an important financial decision. Credit cards, loans, and other forms of financing all have the ability to affect your credit score. When your financial record has a long history of you applying for different forms of credit, this may be an indication to future lenders that you are an irresponsible borrower. Instead, limit your credit applications to circumstances when you really need money and have no other financial solutions. Some alternatives to accumulating another loan application on your credit record may be to:
- Dip into an emergency fund or savings account.
- Budget your finances to stop overspending and have more money.
- Ask a trusted friend or family member for a small loan.
- Get a temporary part-time job for extra cash.
Hard Credit Check Defined
Each time you submit a credit application, the creditor will request a hard credit check. A hard credit check, also called a hard credit inquiry or hard pull, occurs when a financial institution requests a formal copy of your credit report. This official credit report typically comes straight from one of the major credit bureaus and are the most accurate way to get a summary of your current financial situation.
Every time there’s a hard pull on your credit, you may see your credit score drop around 5 points. While an inquiry or two won’t affect your score much, making a habit of frequently applying for new lines of credit certainly will.
Stay Familiar With Your Credit Reports
Make sure you stay on track with your financial goals by checking your credit report often. By staying familiar with your credit reports, you can see how your financial decisions are affecting your credit in real-time. This gives you the chance to change any harmful behavior immediately before it affects your credit too much.
Checking your report often also gives you frequent opportunities to correct errors on your credit report as soon as they pop up. By catching and correcting errors or mistakes on your credit report, you can avoid an unnecessary drop in your score!
Soft Credit Check Defined
Consumers can review their personal finances without damaging their scores by accessing soft credit reports. Unlike a hard credit check, soft credit checks do not affect your overall credit score at all. You can access a soft credit pull online via most financial accounts, such as your bank profile or credit card account.
Get Professional Help if You Need It
If your financial situation feels out of hand, it may be worth it to work with a credit repair organization. Credit repair companies specialize in helping people improve their credit reports at little to no cost. You can also access tons of free information online about how to improve a bad credit score.
What Types of Loans Work With Tier 4 Credit Scores?
Since tier 4 credit scores are on the lower side, borrowers may have trouble finding approval with places like a traditional retail bank. However, there are still lenders willing to work with borrowers with lower credit scores. There are even loan products designed to help borrowers improve credit!
Below are some funding options to consider if you are looking for funding but have a tier 4 credit score.
Bad Credit Online Installment Loans
Personal installment loans are a versatile type of funding known for helping borrowers build their credit. You should be able to find installment loans via a private direct lender or credit union. However, if you choose to go with a credit union, be sure you meet their specific qualification requirements. You may be better off finding your bad credit personal loan from a private online lender.
Risky Funding People With Tier 4 Credit Scores Should Avoid
There are, unfortunately, certain types of lenders who will try to take advantage of people with low credit scores who are looking for funding. Payday and car title loan lenders are two examples of these types of predatory lenders.
Payday loans are a type of funding that may appear to be extremely convenient but often end up putting the borrower in even more debt. Borrowers who get payday loans are almost always stuck with extremely high-interest rates, low funding amounts, and very brief payback terms.
Car Loans vs. Title Loans
An auto loan and an auto title loan are two different lending products. Auto loans are a type of funding distributed to borrowers for the specific purpose of purchasing a vehicle. Title loans, on the other hand, are a type of loan that uses a borrower’s vehicle (that they have already purchased / own) as collateral to secure funding.
Car title loans can be an extremely risky form of financing because, like payday loans, they also come with higher interest rates, low loan amounts, and short payback terms. Furthermore, borrowers who miss payments or default on their title loan run the risk of having their vehicle repossessed by their lender.
Benefits of Improving a Tier 4 Credit Score
When you improve your credit score, there are tons of benefits you can start to enjoy. Below are just a few things you can look forward to once you’ve boosted your tier 4 credit score.
Approval for a Wide Range of Financial Products
Borrowers with credit scores on the higher side often receive instant approval on the funding they apply for. Whether you are looking for a mortgage, an auto loan, or even credit cards, your odds of receiving quick approval only go up as your credit score increases.
Loan Perks Like Better Interest Rate or Higher Credit Limit
Since borrowers with a high credit score are generally considered low-risk, lenders may feel more comfortable granting certain loan perks like low rates or higher credit limits.
Ability To Act as a Helpful Cosigner
A cosigner is a person who essentially “backs up a loan” for another borrower. People with low credit or past bankruptcy may need a cosigner to get approved for certain types of loans or in order to receive a higher credit limit. If the original borrower fails to pay back a loan, the cosigner is responsible for paying back the balance.
While being a cosigner may be a bit of a financial risk, it may be extremely helpful to a borrower who has no other way of finding loan approval. Before you commit to being a cosigner on a loan, make sure the original borrower is someone you know and trust.