Tier 1 credit is the highest bracket of credit score ranking. And so, if you fall under tier 1 credit, your credit score is excellent, which means you may get the best interest rates, best 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:
- Tier 1, Excellent Credit: 800 – 850
- Tier 2, Great: 740 – 799
- Tier 3, A Good Credit Score: 670 – 739
- Tier 4, Fair: 580 – 669
- Tier 5, Poor: 300 – 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 the perfect credit score may be possible, it won’t be realistic for everyone!
How Can I Get To 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 make on-time payments consistently to improve your score. Even one missed payment can bring you down from tier 1 to tier 2, depending on your other credit choices and actions. Most people who have a credit score that is higher than 800 will have no missed payments on their credit reports.
Avoid Bankruptcies, Collections, Repossession, and Foreclosures At All Costs
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, it will be helpful to have some credit cards, a personal loan, a mortgage, and a car loan.
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 quick payday loans and cash advances when you don’t have an emergency fund. 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 score. 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. Not to mention, many loans and credit card companies don’t like to see multiple credit checks when qualifying applicants.
Once you get to an excellent credit score, it is important to learn and practice some strategies to maintain good credit, as it can easily fall with the wrong financial move.
Benefits of Tier 1 Credit
At this point, you may be thinking that getting to tier 1 credit sounds like a lot of work over many years. And sure, it may seem that way, but all it takes are some basic good financial habits and financial literacy. Not only that, once you get there there will be tons 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, when you fall in the highest credit score range, you may get the lowest interest rates available! 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, auto 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. When you have an excellent credit score, you will get the most affordable terms, which will mean saving a ton of money on your purchase. You will also be able to 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 credit score:
Payment history is the most significant factor that will influence your credit 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 payments will significantly negatively impact your score.
Credit Utilization Ratio
Your credit utilization ratio 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.
Your 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.
This variable looks at the number of new credit accounts that you have. Having multiple new credit accounts can hurt your credit scores.
Length of Credit Accounts
The older your credit accounts, the better they will reflect on your credit score.
New Credit Inquiries
The number of hard credit inquiries in a short amount of time will also impact your credit score. Multiple credit checks can be harmful, so space them out to protect your score.