What is Tier One Credit?

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If you are in the process of buying a house, you may be hearing about Tier one credit or “A” type credit. This is one of the highest rankings issued by the nation’s credit rating services. In general, it is applied to a consumer with a FICO score of 700 to 740 and above. A score of 660 to 699 would be considered average, or Tier 2 credit.

An excellent credit score can open doors for a consumer as well as save them money on interest and fees. When a consumer has a  Tier 1 rating, lenders can offer them low-interest loans with favorable terms. Ever see those car commercials that speak about “well-qualified buyers?” Chances are they are speaking about a Tier one scorer. Credit tiers are commonly used when negotiating car leases or loan terms. Excellent credit is seen as a positive indicator of the ability to pay obligations on time and live within one’s means.

Criteria For a Tier One Credit Rating

Tier one credit has different meanings across various credit rating services. Fair Isaac considers its highest tier a credit score of 700 or above. Mortgage lender Freddie Mac rates 760 or above an A+. SmartMoney.com and PBS’s “Frontline” show reports 760 or above as excellent.  The bottom of Tier one seems to change with the times so check the most recent minimum scores with your lending institution.

Benefits to Tier One Credit

Having high credit brings many benefits, not the least of which are discounts and savings on loans. Tier one credit holders have almost limitless access to credit, so there’s little that they can’t obtain. However, with increased credit comes increased risk. Excellent credit holders know that a key to keeping a good credit score is an on-time payment of debts and a good debt-to-income ratio. As long as financial commitments are met, there are many opportunities to use the increased mobility to grow personal fortunes and invest for the future.

What Goes Into Your Credit Rating

There are four types of credit items on your report: Mortgage loans, auto loans, credit cards, and other non-secured loans, and collections/judgments. Here is an explanation of each.

  1. Mortgage Loan.  A mortgage loan is considered a secured loan, that is, the loan is secured through an asset (in this case, a piece of real estate). When you are applying for a mortgage, the lender needs to be sure that paying your mortgage payment is important to you. You should not have had any late payments in the last two years.
  2. Auto Loans.  An auto loan is another type of secured loan. Lenders consider your payment history on auto loans almost as important as mortgages. You should not have had any late payments in the last two years.
  3. Credit Cards or Unsecured Debt.  When it comes to these loans, lenders are much more forgiving. If you were late on making one of these payments, more than 30 days late but less than 60 days late, you should still be fine in the eyes of a lender. If you have a lot of credit lines showing up on your credit report, and you have two 30-day late payments, you should still be all right.
  4. Judgments and Collections.  Judgments are usually an automatic loan turn down unless you have a really good explanation and proof to back it up. Collections are generally regarded the same way unless it is a medical collection. Mortgage companies are extremely sympathetic about medical collections. They know that the medical profession often turns over unpaid accounts to a collection agency immediately, and often without notifying you.

If you have a bankruptcy. You may be considered to have “A” credit, even with a bankruptcy if:

  • You have a good explanation for why you filed for bankruptcy.
  • You have re-established at least three new lines of credit since the dismissal of the bankruptcy.
  • Your bankruptcy was at least three and preferably four years ago.
  • You have perfect credit since the discharge of bankruptcy.
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