The main credit-scoring companies create dozens of scores for you, based on the needs of different lenders. For example, if you apply for a mortgage, that lender will get a different credit score for you than will a car loan lender who pulls your credit score. Different scores are based on the different needs of different lenders.
The credit-scoring companies, therefore, use different combinations of your information and/or weigh different pieces of information differently to create mortgage versus auto versus student loans. That's why you have so many different scores.
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.
What is Tier 1 credit? Some lenders group borrowers into tiers based on their credit scores, with Tier 1 or A being one of the highest categories, explains the credit bureau Experian.
Tier 1 Credit
The exact definition of a Tier 1 credit score 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 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, FICO scores fall into Poor, Fair, Good, Very Good and Exceptional ranges, as follows:
- Poor: 300-579 score
- Fair: 580-669 score
- Good: 670-739 score
- Very Good: 740-799 score
- Exceptional: 800+ score
The higher your credit score, the more you are likely to qualify for credit, the more credit you are likely to be offered, and the lower the credit rate you'll likely be offered. A lower annual percentage rate over the life of a multi-year loan can save you thousands of dollars on the total cost of buying a car.
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.