When you go to borrow money to buy a car, the lender will check your credit and get your three-digit credit score. The credit score looks at everything on your credit report and summarizes it into a single number. Higher numbers indicate a better credit history, and lower numbers indicate the opposite. Some lenders group borrowers into tiers based on their credit scores, with tier 1 or A being one of the highest categories.
Tier 1 Credit
The exact definition of tier 1 can vary from one financing company to another and can change over time. However, to qualify for tier 1 credit, you will generally need a strong score. A good rule of thumb is that to get into Tier 1, your FICO credit score -- so named because it was developed by the Fair Isaac Corporation -- needs to be at least 700. Tier 1 credit can also be called A credit or platinum credit.
Above Tier 1
Some lenders track clients with especially strong credit. To qualify for this special tier, you typically need a FICO score above 740. Depending on the lender, it could be called 0 tier, 1+ tier or A+ credit. Other lenders refer to it as diamond tier. A+ customers typically qualify for the best financing offers, such as zero-down loans or automaker promotional financing with no interest.
Lower Credit Tiers
You may still be able to get a car loan even if you don't have Tier 1 credit. Tier 2 lenders typically focus on borrowers with scores between 660 and 699. Tier 3 customers have scores that fall between 620 and 659 or between 581 and 659, depending on the lender. People on the lower D and E/F tiers or 4 and 5 tiers may also be able to qualify for loans, but they are typically considered subprime and can bear high interest rates.
Tiers and Interest Rates
The higher your tier, the lower your interest rate. As your credit gets stronger, you become a better risk for the lender, and it asks for less interest as compensation for letting you use its money to buy a car. For instance, according to MyFICO, a borrower with a 730 credit score -- tier 1 -- could expect to get a 60-month loan for 3.445 percent as of the date of publication. The same loan for a borrower with a tier 2 score of 670 could cost 7.035 percent, and a tier 3 customer with a 640 score could pay 11.074 percent. Customers with scores in the low 500s can expect to pay 17.307 percent in loan interest.
- AutoByTel: What Is Tier 1/2/3 Credit?
- Insider Car Buying Tips: FICO Score and Credit Tier Breakdown
- MyFICO: How Much Will Your FICO Score Save You on Your Next Car?
- Bank for International Settlements. "Liquidity Coverage Ratio (LCR) - Executive Summary." Accessed Oct. 5, 2020.
- Bank for International Settlements. "Basel III Transitional Arrangements, 2017–2027." Accessed Oct. 5, 2020.
- Federal Reserve Bank of Richmond. "US Bank Capital Regulation: History and Changes Since the Financial Crisis," Page 12. Accessed Oct. 5, 2020.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.