While a FICO score, one of the main measures of creditworthiness, ranges from 300 to 850, banks and lenders often break this range of scores down into brackets. Each bracket represents a different type of borrower, with different probabilities that the loans made to borrowers in these brackets will be repaid. In addition, the brackets affect how much interest the lender will charge for the privilege of a loan.
A top-tier borrower is someone who will have a credit rating near the highest possible score. Generally, a borrower with a score higher than 740 will qualify for the top-tier rates and underwriting privileges, such as the lowest down payments and flexibility when it comes to proving your income or providing loan documentation. Once your credit score reaches this level, increasing it further into the top-tier ratings will not do much to decrease your interest rates.
The second-tier borrowers, or the people with tier B credit, are usually still a good risk, but because of the lower credit score, lenders figure that they are less likely to repay a loan, and therefore money lent to them will be at a higher rate or with more restrictions. Different banks have different criteria with which they define a tier B borrower, but generally your credit score must be above 620 to 640. Tier B borrowers may need to provide more collateral, documentation for the loan or a co-signer to obtain credit.
If your credit score is below 620, you are generally considered a subprime borrower. While loans may be available to subprime borrowers, you will pay a much higher interest rate. Loans from traditional banks may be less common, and you may need to seek a loan from a specialized subprime lender. Auto loans in the lower range of subprime may be restricted to buy-here-pay-here lots that make these higher-risk loans.
Consumers with no credit scores due to a lack of credit history fall into their own category. Without a credit score, you will often be looked at as an anomaly, as many feel that it is a must to build and maintain your credit score. Some people in this category are young and have not established credit, but are looking to in the future. Others are older, and have paid off all of their debt, and are refusing to take on any new debt. After a time period of being debt free with no payments or credit cards, the scores of these consumers disappear. If a person with no credit decides that he wants to borrow money, he may need to seek a co-signer for the loan. With a home mortgage, the lender may perform manual underwriting, which looks more at the ability to pay the loan through income as well as the value of the property and any down payments made.
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