Why is everyone aiming to reach a higher tier, and why is your rating so crucial? Luckily, having a near-perfect credit score doesn’t have to be a pipe dream. All it takes is perseverance and consistency in settling due payments to qualify for credit Tier 1.
Remember that, among other criteria, your credit history will have a considerable impact on your rating. We investigated the matter and decided to explain the rationale behind the tier structure to help our readers make better financial decisions. Read further on and find out what does a good credit score mean and how to reach exceptional credit tiers.
What is a perfect credit score?
Under ideal circumstances, the highest FICO score you can reach, and qualify as Tier 1 borrower is 850. More specifically, this is the absolute upper extreme, and any score in the range above 740 gets qualified as excellent. Being in this range means lenders will consider you for best interest rates on loans, mortgages, and credit cards.
Though aiming Tier 1 and trying to achieve 850 is viable, rarely does anyone succeed in obtaining such a figure. Overall, only 1.2 of all US FICO scores stand at precisely 850 at the moment. Therefore, it is more realistic to set your mind on staying within the ‘Excellent’ tier as the benefits are generally the same.
What is a Tier 1 credit score?
When you, as a consumer, decide to apply for any loan, credit card, or mortgage, lenders rank creditworthiness in separate tiers. Depending on which credit tier you belong to, the likeliness to get a loan and the interest rate can increase or decrease. Lenders analyze several factors like credit habits and income to accommodate you within a specific tier structure.
To begin with, Tier 1 qualifies you for the most favorable credit terms. It tells lending companies that you’re a lesser risk, and your capacity to pay on time and in full is almost guaranteed. Your credit score should stand somewhere between 750 and 850 to get categorized as Tier 1 borrower. As a result, you can set aside thousands of dollars until the debt gets settled as lenders will offer you the best rates.
Is it hard to achieve Tier 1 Credit?
If you’re an average US citizen, that means there’s always room for improvement. In reality, you have several options available to start enhancing your score right away. These are the most important:
- Pay your bills on time. Your payment history has the most significant impact on scores, and late payments damage your creditworthiness. Thus, it’s best to give bills priority and automate the payments so that no monthly bill remains left out.
- Eradicate debt. Large balances worsen the credit utilization ratio, and anything above 30% lowers your chances of reaching Tier 1. Review your account and rebalance the monthly payments. Start by paying off the bad loans that entail the highest interest rates.
- Avoid hard inquiries. Never apply for too many new credit products within a short period. Keep to what’s ultimately essential when it comes to credit cards. Too many hard inquiries are detrimental to your tier score and can lower it!
- Dispute inaccuracies. Build a habit of checking your credit report for errors frequently. One small mistake can pull your score downwards. If you ever find any inconsistencies, be sure to file a dispute to get eliminated.
- Leave your oldest credit card open. Any earlier account is sound evidence of your ability to pay in due time and increases your chances of receiving a loan.
What is a Tier 5 credit score?
Credit Tier 5 refers to the lowest position on the scale. Any rating below 579 points gets listed as poor, while 499 and less means you’re in the deep red zone. Only 5% of Americans belong to this category, and such applicant will most likely get rejected when applying for a loan.
People who belong in the Tier 5 category have major credit or bankruptcy issues. As a result, interest rates on credit products are incredibly high. Lenders also require sizeable security deposits and down payments from Tier 5 borrowers.
What is a Tier bump?
Some credit unions have indirect lending practices and ‘bump’ vehicle loan applicants to an upper credit tier. Consequently, the interest rate becomes more favorable to the borrower. Credit unions have the sole discretion to decide which applicant gets considered for a tier bump.
In short, this happens when the creditor provides a credit report with a higher credit score than that of the lender’s CRA. Credit scores for auto loan rates can jump up to 200 points if a credit reporting agency claims so.
What is a good credit score for a car loan?
The truth is, various states impose different minimum requirements for your credit rating. There are no universal credit scores outlined for auto loans, but your position impacts the offers and the interest rates you get. Also, lenders have qualification criteria such as credit history that slightly differ depending on several factors.
Generally, any car loan credit score positioned at 660 stands excellent chances to get approved. Such a good rating should place you somewhere between credit tiers 3 and 4. A fair score implies an average interest rate between 7.65% and 11.26% for an auto loan approved on a new vehicle.
A 450 credit score car loan, for instance, qualifies as a weak FICO score. In this case, you might get rejected as a subprime borrower, or the interest rate will be unbearably high. More specifically, expect to pay 18% on average for a brand-new car if you belong within the lowest credit tier.
Final Word
Your access to better-termed loans and new credit products depends on your financial health and your credit report. A higher-end tier plus a good credit score for buying a car is what most Americans strive for. But before anything, you must understand how it functions and what it takes to maintain it.
Please keep coming back to us for more savvy ideas on how to enhance your three-digit score. Also, you’ll learn how to reap the actual benefits of an upper tier. Also, don’t forget to share your thoughts and experiences on this topic in the comment area, too.
I was always asking myself how to improve my credit ability. Thank you for the tips.
A lot of things affect the will you get the loan and at what terms and interest rates you will get it. We can improve some of the things but not all of them. We can pay our bills on time and payments on credit cards. But it is not up to that. I’ve always think that some other things affect the terms and the interest rates that you will have to pay when taking a loan. Although I have several credit cards, I pay my bills on time and I don’t have problem borrowing money when the sums are not big, For a bigger amount I was rejected. And I don’t know why. I have a good monthly salary, stable work position and I don’t owe money I was rejected. I can’t understand why really.
Thank you for the article. I am thinking of applying for a car loan and I am checking the options. This way I will know what will have impact on the terms of the loan and I will try to improve my tier score.
All of the things mentioned in the article can raise you credit score and make you more eligible for credit. If someone has a long credit history it makes him more eligible for credit. If bills are paid on time, no late payments and things like that you will be more eligible for taking a loan on better terms and lower interest rates. But the main advice is to go for the smallest amount needed and to make sure that this loan will not ruin your credit score and to be sure that you can pay it on time. This way you will be able to take another loan later when needed. If you take a large amount at once it will impact your credit score and half of the Americans nowadays live on credit card and loans. The life expenses are enormous, we are all paying huge utility bills and rents and it rarely leaves anything to enjoy in life. The car is necessity that we all need and not luxury any more. So having credit cards and loans is our everyday reality. And if we are able to save few bucks per month we are happy.
I am not into finance matters, but I think that acquiring a good credit score is impossible these days. With all the situation with pandemic and people lose jobs everyday, it is impossible to be sure that you will be sure that you will have your work next month.
As the statistics said the average credit score for 2019 was excellent. I am curious what will happen this year. https://www.valuepenguin.com/average-credit-score