If you are looking to get an auto loan, mortgage credit card, or any other type of credit, credit lenders may assess how good of a candidate you are for credit based on your credit tier.
A credit tier will be based on your own personal history as a borrower, which means that it can affect how likely you are to get approved for credit.
Your credit habits and other factors like your income can impact what tier you will be placed into by credit lender’s standards. The tiers or usually tier 1, tier 2, and tier 3.
Tier 1 credit is the best and tier 3 is the worst. With tier 1 credit, you will generally be qualified for the most favorable loan terms, and this could lead to saving lots of money over the life of a loan.
If you are looking to find out more about tier 1 credit, you have come to the right place. This is something that we are going to explore in more detail in this article, so you can better understand what it means.
What Does Tier 1 Credit Mean?
All lenders will designate credit tiers as part of what is called risk-based pricing.
The type of criteria that is used to determine which tier you fall under is based upon things like your credit score, any current debts and income that you have, and more.
This method is often used to determine what interest rates and terms they will offer a specific borrower.
Those that are more likely to repay their debt will present the least risk to the lender, which is why they are usually offered to lowest interest rates and best terms. These people will fall into the tier 1 credit range.
Those that present a higher risk to the lender will be those that fall into lower credit tiers, and this means that they are likely to have to pay higher interest rates. They may even encounter additional fees on a loan or credit card.
If a borrower’s application is approved, yet they receive less-favorable terms due to the information that was found on their credit report, the lender is required by law to send them a risk-based pricing notice.
The lender will provide this notice either verbally, electronically, or in writing, once they have determined the rates and fees on the credit. This will be before the borrower has accepted the terms.
Once the borrower has viewed to notice, they will be able to decide whether to accept or decline the loan under the terms that have been offered.
What Credit Score Do I Need To Get Tier 1 Credit?
For those that don’t already know, your credit score is a 3 digit number that lenders are able to use to determine your eligibility for credit.
Your credit score can be used to determine how likely you are to pay debt. Your credit score can range from anywhere between 300 and 850, and higher or lower numbers than this indicate better or worse credit.
In order to be among the tier 1 credit bracket, you will need to have a good credit score.
There is no specific number for this, as each lender will use their own calculations to determine your level of risk and decide which customers get the best rates.
This means that you could be a tier 1 borrower with one lender, and a tier 2 or 3 borrower with another.
Generally, you are looking at needing a score of at least 750 or higher to be put into the tier 1 category, but this might not always be the case for all lenders.
Other lenders could have higher or lower thresholds. The best thing that you can do to get into the tier 1 category is to improve your credit score as much as you can.
How Do I Get Tier 1 Credit?
Thankfully, there are lots of things that you can do to improve your credit score and start working towards having excellent credit. We will explain some different ways of doing this below.
Avoid Late Or Missed Payments
You should make sure to get into the habit of paying all of your bills on time.
Your payment history is one of the main things that will be considered when your credit score is being calculated, which means that this should be one of your biggest priorities.
Even just one late payment on your mortgage, credit card, or other bill can lower your credit score. This means that paying on time is essential for having good credit.
Keep Your Debt Low
It might sound easier said than done to keep your total amount of debt low, but if you are carrying a large balance on your credit, your credit utilization will be higher.
The amount of debt that you have relative to your total available credit will determine your credit utilization rate. The majority of lenders would prefer if you had a utilization ratio of 30% or less.
The lower your credit utilization, the better.
It can be quite difficult to pay off your debts to lower this amount, so you should be prepared for it to take some time. The first step in doing so would be to review any accounts that you have, as this will tell you exactly how much you owe.
Once you have done this, you can create a budget that allows you to put as much money as possible toward paying off your debts.
Only Get Credit That You Need
It might be tempting to open new credit accounts to make bigger purchases or take advantage of offers and promotions, but the more applications that you have for credit, the more your score will be impacted.
You will need to carefully consider whether you need a new account before you open one.
Credit applications will require the lender to look at your credit report, which creates a hard inquiry. Too many hard inquiries on your credit report will work to lower your credit score.
Check For Inaccuracies On Your Credit Report
There are a few places that you can go to in order to check your credit report. Once you have your report in front of you, you should make sure to check it for any information that shouldn’t be there.
If there is any information that you find to be incorrect, this could be a sign of fraud or identity theft. You will need to ensure that all of the accounts that are listed on your report are correct, and you can dispute anything that shouldn’t be there.