Just when you thought you left your report card days behind you, applying for a car loan may just prove that even as an adult, you cannot avoid the grading system. While different lenders use any number of credit-rating systems to screen prospective borrowers, the alphabetically-based tier system is one way for lenders to quickly size up a candidate's risk potential. The Tier B designation is not the upper crust of creditworthiness, but it is a decent standing that may qualify for better-than-average interest rates.
Car loan processing is similar to mortgage processing in that both rely on a borrower's credit rating to determine interest rates. The auto loan industry uses slightly different criteria from those of their home loan counterparts to determine credit tiers, but the principle is the same: higher tiers get better -- that is, lower -- interest rates. Credit information website Credit Sense delineates car loan credit tiers into A+, A, B, C, on through F. Other versions may designate numbers: Tiers 1, 2 and 3; or metals: platinum, gold and silver. Each tier represents a given range of Fair Isaac Corporation (FICO) credit scores.
Tier B Up-Close
According to auto loan guide Insider Car Buying Tips, Tier B credit goes by the alternate names of Tier 2 or Gold Tier, depending on the lending organization. Translated into FICO scores, Tier B auto loan candidates range in the 660 to 699 score territory. For this particular tier, which faces interest rates about 4 percent higher than the A+ tier, the B rating is only slightly more lenient than A in the areas that can jeopardize credit. Tier B's risk declines through new lines of credit, slow payments, small unpaid collections and credit cards exceeding 50 percent of credit limit.
Outside the Pale
Whether you've made it into the ranks of Tier B or not, it may not matter as far as being able to get a car loan, according to the Autobytel automobile advisory website. Auto lenders use their own targeted algorithms, sometimes called the "FICO Auto Industry Option," that are distinct from more general FICO ratings. This might even be favorable for someone who does not have good credit because a metric tailored around car loan history might not factor in spotty payment history from other sources. If your credit is fair but you managed to make car payments on time, you could be golden.
Just as credit scores are not static numbers but dynamic reflections of how you use credit on an up-to-the-minute basis, your tier designation isn't permanent. You may be Tier B one day, but with effort and vigilant correction of credit report errors, you could reach those higher ranks of favorable interest rates. As Credit Sense notes, credit tiers are only part of the story of getting an auto loan. Lenders also take into account your job stability and ability to pay. If these others factors are below specified thresholds, being Tier B or A won't help matters.
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