What is a Tier 1 Credit Score?

Maintaining your credit and keeping a good credit score takes serious effort and dedication. With enough time and effort, you can improve your credit to the point that it is considered “tier-one” credit, but what does this mean?

We’re going to look into what, exactly, tier-one credit is, as well as how it works and what benefits it can bring to the table.

Definition and Examples of Tier-One Credit

The definition of tier-one credit is simply being a part of the highest credit rating category or having excellent credit. Borrowers with tier-one credit are considered to be much more creditworthy than those with tier-two or lower, indicating that they are much more likely to pay back a debt that is incurred.

A consumer with tier-one credit will have a higher credit score than other consumers and will be offered the best rates and terms for financial products like credit cards and loans. The exact numerical cutoff for tier-one can vary from one lender to another, but in most cases, the low end of tier-one will be between 700 and 730.

What Is a Good Credit Score?

A good credit score is subjective but is generally considered to be anything between 650 and 750. Below 650 is considered fair, and credit scores above 750 are considered excellent. Having a more comfortable debt-to-income ratio, however, often means that you can still leverage lower scores for better benefits.

What Is The Tier 1 Credit Range?

Most credit standards place the beginning of tier-one credit at close to 700. This means that if you are a few points lower, but have minimal negative credit items, you may still qualify. Anything under 680, however, is still considered to be “sub-prime”.

How Does Tier-One Credit Work?

Tier-one credit is based mostly on credit score but does factor in a few other things as well. Your income, debt, and assets affect your credit tier. Borrowers with the lowest overall risk of default are considered tier-one credit.

Benefits of Tier-One Credit*

While this list certainly isn’t exhaustive, it does show the most common or valuable benefits of holding tier-one credit.

The Best Interest Rates

A few interest points here or there may not seem like a lot to most people, but a difference of a couple of points during a 5-year auto loan can come out to a difference of thousands of dollars in interest over the life of the loan.

More Financing Options

With tier-one credit, you’ll be paying less interest, which means your monthly payments will be lower. The difference between tier-one and tier-two credit in your monthly car payment could be a difference of $100-$200 per month. For many people, this would price them right out of owning a car.

A Variety of Lenders and Loans To Choose From

With tier-one credit, you’ll have countless options for lenders. With sub-prime credit, you are often stuck with what “bad credit” options you can find, but with tier-one, you can often get offers from several lenders, and make them compete for your business.

Save Money When Financing a Purchase

No matter how good your credit is, there is always a cost to borrowing money. For those with damaged credit, the cost to borrow can be incredible, while for those with tier-one credit the cost to borrow the same amount might be just a few dollars a day.

What Credit Score Do I Need for Tier 1 Credit?

The specific score you will need to become part of tier-one credit will depend on who is pulling and looking at your credit, and why. Most lenders will have their own criteria for what constitutes tier-one credit, and they generally don’t publicize those criteria.

Do My Loans Affect Credit Scores?

Loans will affect your credit score just like any other consumer financial product. Missing a payment will hurt your score, as well as defaulting on the loan. Simply having an installment loan like a mortgage or an auto loan will not hurt your score, and may help it, since it adds to the types of credit you have.

How Can I Get To Tier 1 Credit?*

If you are itching to get to tier-one, but just aren’t there yet, here are some helpful tips to get your score to increase as quickly as possible.

Make All of Your Payments on Time

Payment history is one of the biggest factors in your score calculation, so making all payments on time is crucial to maintaining solid credit. You may want to have a look at our post explaining repairing credit scores by deleting 30-day late payments. how to remove late payments from a credit report.

Avoid Bankruptcies, Collections, Repossession, and Foreclosures At All Costs

Bankruptcies, repossessions, and other similar actions are considered major derogatory items and bring your score down more than anything else. So, make sure you avoid repossessions, collections, or inquiries at all costs.

Keep Your Credit Utilization Low

Your ideal credit utilization should be 30% or less. This means that you should only be using 30% or less of your total available credit at any point.

Have a Good Financial Portfolio

Make sure you have a good mix of consumer financial products. Having 10 credit cards isn’t ideal, but a few cards, a few installment loans, and maybe a home equity line of credit or HELOC can make your credit much more attractive.

Having a Good Emergency Fund To Avoid New Debt

Having a little extra cash stashed can help you avoid increasing credit card debt, or using predatory lending like payday loans.

Have Aged Accounts

A long credit history helps raise your credit score. Even if you don’t use them, keep them open to show that you have old accounts that are still in good standing.

Limit Hard Credit Inquiries

One hard inquiry can drop your score 5-10 points, and several can drop you dozens of points. Avoid hard inquiries if possible.

How Is Credit Calculated?

While the formula that each company uses to calculate your score is proprietary, the scoring components are not. Here are the major factors in your credit score.

Payment History

Payment history is the most significant component, and it stays on your report for 7 years.

Credit Utilization Ratio

This is the amount of credit you have, to the amount of credit you’re using.

Your Credit Mix

Healthy credit has a healthy mix of credit types. This means having credit cards, as well as other lines of credit like a HELOC, and installment loans like personal loans, auto loans, or a mortgage.

New Credit

Too many new accounts can count against you, so don’t apply for 6 new cards just because your score went up a bit.

Length of Credit Accounts

Newer accounts aren’t as valuable as older accounts, but it’s still good to have a mix of account ages.

New Credit Inquiries

Multiple hard inquiries into your credit will have a reducing effect on your score. Try to space out events that will require you to have hard inquiries.