Many lenders use different credit tiers to determine the interest rate to offer you on your auto loan. Where you fall within these tiers depends largely on your credit score. The credit score cutoffs for each tier level also differ by lender, but not by much, typically around 10 to 20 points.
Tier 1 Credit
Other names various lenders use to refer to Tier 1 credit are A tier and platinum tier. People that fall into this credit tier must typically have a credit score of at least 720, depending on the lender. Some lenders consider those with a credit score of 700 or higher to be in the Tier 1 category. People in the Tier 1 credit category are the ones that qualify for the zero down and zero percent interest auto loan promotions.
Tier 1 Credit Characteristics
Those with Tier 1 credit generally have a credit history that includes a previous car loan with a positive payment history and no history of late payments on their other lines of credit. Other lines of credit include student loans, credit cards and mortgages. People in the Tier 1 category also have low outstanding balances relative to credit limits on revolving lines of credit such as credit cards or home equity lines of credit.
Negative Accounts
Those with Tier 1 credit typically have no negative credit information, though some slightly negative information may be acceptable. If a person has a few slow pays, meaning she made one or two late payments on one of her other lines of credit, as long as those payments were not for a previous car loan or mortgage, she may still fall into the Tier 1 category. Also, if she has a collection account for a low amount, typically under $300, she may also fall into the Tier 1 category.
Considerations
If you are thinking of applying for an auto loan and are wondering which credit tier you fall into, it's a good idea to get a copy of your credit report. See what credit card and loan balances you can pay down to lower your outstanding balances relative to your credit limits. Minor adjustments like paying down your credit card balances can bump you up into the Tier 1 credit category, which will allow you to qualify for the best interest rates. With a lower interest rate, you pay less for your car over the life of the loan.
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