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What is tier 1 credit

What is tier credit

Tier 1 credit can be defined as the highest level of credit.1 And so, if you fall under tier 1 credit, your credit score is excellent. You may get the best interest rates, financial products, optimal repayment terms, and more! 

Below is everything you need to know about tier 1 credit, how to get there, and more details on the benefits of having excellent credit. 

What Is The Tier 1 Credit Range?

There are a few different credit scoring models. Still, FICO is the most popular one that the three major credit bureaus and lenders use. When referencing a FICO score, credit scores can range from 300 to 850. 

Here are what the different credit tiers look like:

Credit TierDescriptionCredit Score Range
Tier 1Excellent Credit800 – 850
Tier 2Great740 – 799
Tier 3A Good Credit Score670 – 739
Tier 4Fair580 – 669
Tier 5Poor300 – 579

And so, as you can see, tier 1 credit falls under the range between 800 to 850. Keep in mind that only about 1.6% of Americans have a perfect credit score, and so although getting a perfect credit is possible, it won’t be realistic for everyone!2

How Can I Get Tier 1 Credit?

Getting to tier 1 can take years and may not be possible for everyone, but it doesn’t hurt to try to get there! Here are the main things you will have to do to build an excellent credit score: 

Make All of Your Payments on Time

One of the easiest things you can do to get to tier 1 credit is to improve payment history on your credit report. Even one missed payment can bring you down from tier 1 to tier 2, depending on your other credit choices and actions. 

Avoid Bankruptcies, Collections, Repossession, and Foreclosures

Things like bankruptcies, collections, repossession of assets, and foreclosures on real estate will all negatively affect your credit score. Even one of these on your credit report can disqualify you from getting into that tier 1 credit category. 

Keep Your Credit Utilization Low

Another thing you need to do to get to tier 1 credit is to keep your debt lower than the amount of available credit you have. This is especially helpful for revolving credit accounts.  

Have a Good Financial Portfolio

Another thing that will help your credit score is to have a range of financial products. For example, instead of having just credit card balances, having some credit cards, a personal loan, a mortgage, and a car loan will be helpful. 

Having a Good Emergency Fund To Avoid New Debt

Another thing that can be detrimental to your credit score and bring you down a tier is having too much debt. When facing an emergency, you may need to turn to fast cash options like:

And so, having a rainy day fund should be a priority if you are trying to improve your credit score. 

Have Aged Accounts

The age of credit accounts will also impact your credit scores. Those in the top credit tier will have credit accounts that are several years old. To build this history, don’t close your credit accounts even after they are paid off!

Limit Hard Credit Inquiries

Finally, to get to the top credit tier, you should limit hard credit inquiries in a short period. A single hard credit inquiry can bring your credit score down five points; having multiple can take you down a few tiers. Many loans and credit card companies don’t like to see multiple credit checks when qualifying applicants.

Once you get an excellent credit score, it is important to learn and practice some tips on how to maintain good credit, as it can easily fall with the wrong financial move. 

Benefits of Tier 1 Credit Scores

There are a lot of perks that come with having an excellent credit score! Here are some to look forward to if you have tier 1 credit: 

The Best Interest Rates

No matter what loan you are looking at, you may get the lowest interest rates available when you fall in the highest credit score range! A loan’s interest rate will be the most expensive cost of borrowing, so a low interest rate can save you a lot of money! 

A Variety of Lenders and Loans To Choose From

Whether looking at credit cards, personal loans, or mortgages, you will have to choose between different lenders and sometimes loan options. Some loans are naturally better than others, as some are geared towards borrowers with bad credit. When you have tier one credit, you will get your first pick of lenders and loan options. Why are both of these important? 

Finding an affordable and flexible lender can mean a more convenient and affordable loan or financial product! An affordable and manageable loan can mean a good move for your credit report while allowing you to borrow funds when needed. 

Save Money When Financing a Purchase 

Many people use a loan to make a large purchase; an auto loan or mortgage are a few examples. With excellent credit scores, you will get the most affordable terms, saving a ton of money on your purchase. You can also put down the least amount of money if a down payment is required. And so, if you want the best deal on a home, car, furniture, or other large purchase, getting to tier 1 credit should be the goal! 

How Is Credit Calculated?

If you are unaware, credit scores, the most popular being a FICO score, are calculated based on a few factors. These factors also comprise your credit history (listed on your credit reports). 

Here are all the variables that go into calculating a FICO score:

  • Payment History — Payment history is the most significant factor that will influence your credit history and score. Your payment histories for all of your credit accounts will show up on your credit reports. Every time you make an on-time payment, it will positively impact your credit. Missed monthly payments will significantly negatively impact your score. 
  • Credit Utilization Ratio — Your credit utilization rate is your debt balance compared to the amount of available credit that you have. Keeping your credit utilization under 35% is a good idea; anything above this percentage can negatively impact your credit scores. 
  • Credit Mix — Different kinds of credit types will help improve your credit score. Lenders will look at your credit report to look at the different kinds of credit accounts you have. 
  • New Credit — This variable looks at the number of new credit accounts that you have. Having multiple new credit accounts can hurt your FICO scores. 
  • Length of Credit Accounts — The older your credit accounts, the better they will reflect on your credit.  
  • New Credit Inquiries — The number of hard credit inquiries in a short amount of time will also impact your FICO score. Multiple credit checks can be harmful, so space them out to protect your score. 

Frequently Asked Questions About a Tier 1 Credit Score

What is the starting credit score?

The concept of a “starting credit score” can vary depending on the credit scoring model being used. For example, FICO scores range from 300 to 850. When you’re new to credit, you generally don’t start at the bottom or the top of this range. Instead, you’ll likely begin with a score that falls somewhere in the middle.

How often do the three major credit bureaus update credit score ranges assigned to credit tiers?

The three credit bureaus typically update credit reports every 30 days. However, the credit score ranges assigned to different credit tiers, like tier one credit, are generally stable and don’t change frequently.

Can I get more than one auto loan with a tier one credit score?

Yes, having a tier one score increases your chances of securing more than one auto loan with favorable terms. However, keep in mind that taking on more than one auto loan can affect your credit utilization ratio.

How do credit card balances impact my tier one credit?

Maintaining low credit card balances relative to your credit limit is key to keeping a high credit rating. High balances can negatively impact your credit utilization ratio, potentially moving you down from tier one.

Do all lenders use the same credit tier scales when offering auto loans or other credit products?

While most lenders refer to the credit tiers defined by the three credit bureaus, some may have their own internal scoring models. Despite using the same credit score, you may qualify with one lender and get rejected by another. Always check with a lender to understand how they interpret credit tiers and offer loans.

What are the chances of negotiating favorable loan terms with tier one credit?

A tier one credit score puts you in a strong position to negotiate favorable loan terms, be it for auto loans, mortgage loans, or other financial products. Lenders see you as a low-risk borrower and are often more flexible with terms.

How quickly can my tier one credit score drop if I miss a payment or max out a credit card?

Missing a payment or maxing out a credit card can have a significant impact on your FICO score. While the exact drop can vary, such actions could potentially move you out of the tier one credit range.

Is it easier to get approved for premium credit cards with a tier one credit score?

Yes, a tier one credit score greatly improves your chances of being approved for premium credit cards, which often come with perks like high credit limits, rewards, and lower interest rates.

CreditNinja: Tier 1 Credit Scores 

Many people think they need tier 1 credit to get loans. But at CreditNinja, we work with all types of credit tiers. We consider more than your FICO score when making approval decisions. Apply online today to see if you qualify for one of our personal installment loans

References:

  1. What Is a Tier 1 Credit Score? │ The Phenix Group
  2. Perfect 850 credit score │ CNBC
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