What Is Tier One & Tier Two Credit?

Improve your mortgage rate by improving your credit tier.
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Credit tiers are brackets of credit scores used by financial institutions. Once a potential borrower is approved for a loan, the credit tier will determine the interest rate for that loan. A borrower with a credit score that falls into Tier One will qualify for a lower interest rate than a customer with a credit score that falls into Tier Two.

Credit Score

Your credit score is a number between 300 and 850 that is a reflection of how you handled credit in the past. Based upon a confidential formula developed by the Fair Isaac Corp., or FICO, a higher score tells a financial institution that you can probably be depended upon to repay a loan because you have a history of making previous loan and credit payments on time.

Tier One and Tier Two

Credit tiers are arbitrary brackets set by each financial institution. For example, one bank may define a client as a Tier One customer if his credit score is between 720 and 850. At the same bank, a client with a credit score between 700 and 719 may be a second tier customer. Yet another bank may define Tier One and Tier Two as 750 to 850 and 700 to 749, respectively. The first bank may have an additional five tiers to cover scores from 699 to 350, which the second bank could have six additional tiers.

Lower Tier Benefits

The lower the tier you are in, the lower the interest rate you will be charged on a loan. If you are considering a loan, ask the loan officer for your credit score and for a list of their credit tiers. At one bank, you may be in Tier Two, but at another, you might be in Tier One.

Lowering Your Tier

You can lower your tier by improving your credit score. Make all of your current loan payments on time. Do not close any old unused credit card accounts. Two criteria for your credit score includes the age of your debt — older is better — and how much outstanding debt you have in relation to have much credit you have available to you — lower outstanding compare to available is better. These two criteria will show you have a lot of credit history and that you handle your debt well.

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