The 5 Levels of the Credit Card Tier System

credit card tier system

Are you looking into getting a credit card? If you’ve never had one before, it can seem like a totally foreign world trying to understand the different card options and their benefits. As you’re learning about various cards and card companies, be sure you know about the credit card tier system.

This system has five tiers, and your credit card history and credit score will determine which tiers are accessible to you. We’ll start from the beginning and explain what a tier one credit card is.

Tier 1: Starter Cards

Starter cards are designed for people who have very little or no credit history. Higher-level credit cards often require you to have a positive credit history before you can even apply for them. So starter cards are a way to accrue positive credit history to qualify for higher-tiered ones in the future.

Some examples of starter cards include:

  • Student cards: College students are usually able to qualify for a student credit card. You won’t need to pay a security deposit to open the account, and many student cards even offer a rewards program. If you’re a student with an independent source of income, you can qualify for this card.
  • Secured cards: These are cards that require a security deposit to get approved. The amount you pay in the security deposit is usually equal to your credit limit. This card is generally easy to apply for since the security deposit mitigates any risk from the banks.
  • Unsecured cards: These credit cards allow you to build credit without paying a security deposit. However, these cards often come with higher interest rates.

Pros of Tier 1 Cards

Aside from being an excellent option for those looking to build up their credit score, starter cards have plenty of other benefits:

  • No annual or startup fees
  • Potentially waived additional fees
  • Lenient interest rates

Cons of Tier 1 Cards

The drawbacks of your starter card depend on the type of card you go for. But generally, most tier-one cards won’t have a rewards program.

Additionally, most starter card credit limits will just be a few hundred dollars, so you won’t be able to make any larger purchases.

Tier 2: No-Annual Fee Cards

Tier two credit cards maintain no annual fees and usually tack on a basic rewards program in the form of cashback, airplane miles, or points. These usually have a credit limit of $500 to the low thousands.

If you started with a student credit card, you might be able to simply upgrade that card to a no-annual-fee card. Otherwise, it’s still pretty easy to sign up for a tier two credit card, provided you have at least a good credit score (670 to 739). If your score is below those numbers, then you should learn how to get a good credit score.

Pros of Tier 2 Cards

The obvious benefit of no-annual-fee cards is in the name. So instead of being charged a lump sum to maintain your credit card account every year, you can save that money for a future purchase.

The lack of annual fees often encourages people to keep these cards for longer, which can actually improve your credit score. There’s a general rule that you shouldn’t close a credit card account if you don’t have to; closing it may negatively impact your credit score. If you’re not paying any annual fees for it, it’s not costing you a cent to keep it around.

Additionally, many no-annual-fee credit cards have a sign-on bonus of a couple hundred dollars as an incentive to open an account.

Cons of Tier 2 Cards

The majority of the drawbacks to no-annual-fee credit cards are comparative to higher-tiered, annual-fee cards. For example, you won’t get as big of a sign-on bonus or rewards points when compared to annual-fee options.

Tier 3: Mid-Tier Cards

In this next level of credit cards, you can really start to see the benefits of reward programs. Not only can you earn a lot of points to go towards airline miles and hotels, but you can also receive perks like free checked baggage, priority boarding, and more.

Credit limits for mid-tier cards will start around $5,000 and can go up to $7,000-$10,000, depending on your carrier. You should consider applying for these cards if you’ve established a credit history for longer than a year and if your credit score is over 700.

If you want to apply for a mid-tier credit card, it also helps to have an income that’s close to the median household income in America ($68,703 in 2020).

Pros of Tier 3 Cards

Frequent travelers will love mid-tier cards because their rewards points can go towards flier miles and hotel rentals. You can also expect larger sign-on bonuses for tier three credit cards, though the exact amount varies depending on which card you sign up for.

Cons of Tier 3 Cards

Of course, there’s a catch to all of these wonderful benefits: an annual fee. Mid-tier credit cards will always have an annual fee, on average from $95 to $250. However, cards with higher annuals fees will have better rewards, which can make up the difference in what you pay.

Tier 4: Premium Cards

Premium cards consist of the highest tiered credit cards you can apply for. This is when perks become a major selling point, since being a premium cardholder gives you access to copious travel benefits.

Tier four credit limits can exceed $10,000, which leaves plenty of space for major purchases. If you’re interested in applying for a premium credit card, you should have a one and a half to two-year credit history and a credit score of at least 720. Even if you have a lower income, it shouldn’t matter if your credit score is sparkling.

Pros of Tier 4 Cards

You’ll see some majorly luxurious benefits as a premium cardholder:

  • Global entry credit
  • Easily accrued miles
  • Access to hundreds of hotels and airport lounges worldwide

Of course, the exact benefits will vary with your card carrier, but you can expect them to be worth it (especially considering the annual cost).

Cons of Tier 4 Cards

With these awesome benefits comes an awesome price tag. Annual fees can range from $450 to $550. But similar to mid-tier credit cards, the money you save from benefits can potentially help your card pay for itself.

Tier 5: Invitation-Only Cards

Top-tier credit cards are reserved for top-tier customers. These exclusive credit cards aren’t advertised because you have to be invited by a bank or corporation to get the card in the first place. And the only way to even get invited is to have a thick wallet and/or some sort of celebrity status, like being related to royalty.

These types of high-society cards have no credit limit, and all of the perks that come from lower-tiered cards. And credit score doesn’t even matter for invitation-only cards—even if you have a perfect score, that’s not enough to get an invite.

Pros of Tier 5 Cards

With no credit limit and all of the perks and more of a premium credit card, there’s little you can’t do and buy with this top tier credit card.

Cons of Tier 5 Cards

Because these cards are by invitation only, there’s no guarantee you can get one, even when you strike it rich. And if you do, there are some serious fees attached, like $7,500 to open the account and a $2,500 annual fee. Although, by the time you’re invited to use this card, these fees may seem like small potatoes.

Choosing the Right Credit Card

Now that you know the different tiers of credit cards, here’s a question to consider: Should you even worry about what tier your credit card is in? The answer is simple: no.

The echelon or significance behind a certain tier of credit card should have no impact on the kind of card you choose. You should look for a card that gives you enough benefits and helps you pay off monthly bills.

If you’re just getting into the credit card world, we suggest you start from the bottom tier and work your way up to a credit card tier that makes you comfortable.

And if credit cards aren’t your style, you should consider taking out a personal loan from Power Finance Texas. Personal loans give you the money you need now, which you’ll slowly pay off over a six month period. Learn more about personal loans to see if they’re the right financial option for you.