Subprime vs. Prime Credit Score Classifications

Prime borrowers signing a loan contract
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Lenders classify potential borrowers into two general categories: prime and subprime. Having a credit score between 580 and 669 is considered subprime according to the FICO scale and these borrowers are considered a higher risk to lenders. Prime borrows typically have a score greater than 669 and are consider to have the least risk of defaulting on a credit card or loan.

According to Experian's Consumer Credit Review, 59% of Americans had a FICO Score of 700 or higher in 2019—the biggest percentage ever seen at that level. Also, the number of Americans with a perfect FICO Score of 850 has increased by 63% in the last 10 years. More and more consumers are not only making smarter credit decisions, they are consistently better educated and are monitoring their credit scores more closely.

Making sure you qualify as a prime borrower is an important step if you hope to borrow money in the near future. Below we discuss the benefits of being a prime candidate and how to make sure you stay within the ideal range.

Benefits of Being a Prime Borrower

Being a prime borrower makes you an attractive customer for banks and justifies your demand for the lowest possible interest rates. Prime borrowers are generally approved for higher loan amounts, higher credit limits, and lower down payments. In general, a good credit score gives prime borrowers more negotiating power when shopping for a credit card or loan.

While prime borrowers are more likely to have their applications approved, the higher credit score doesn't guarantee approval. Income, debt, and other risk factors are also considered. A prime borrower who doesn’t meet the lender's qualifications can be denied even when their credit is excellent.

Other Borrower Classifications

Within the two broad categories by which consumers are classified, borrowers can also be labeled as "super prime" (when they have a score of 720 or above) or “near prime” (when their score isn't quite prime but their credit history isn't riddled with subprime indicators).

How to Become a Prime Borrower

Prime borrowers generally have fewer bank and credit accounts overall, fewer new accounts, fewer credit inquiries, lower credit utilization, few or no collection accounts, and no recent delinquencies.

You can improve your credit and work your way toward becoming a prime borrower by minimizing the number of accounts you open, using only a portion of your available credit, and paying your accounts on time. Take care of any past due balances so they don't continue to count against you and avoid letting accounts go to collections.

Even accounts that aren’t normally reported to the credit bureaus, like a utility or medical bill, can wind up with a collection agency and on your credit report if you don’t pay the bill.

When You Don't Qualify as a Prime Borrower

You can still be approved for some credit cards and loans when you're not a prime borrower. However, you may not be approved for the most favorable terms. For instance, you might be approved at a lower credit limit or loan amount, higher interest rate, or both.

Having a bigger down payment with mortgages or auto loans can help lower your interest rate and allow you to purchase a more expensive house or car.

A cosigner who is a prime borrower can help you get approved for a larger loan amount or receive a lower interest rate. Cosigning is risky, so be careful about asking someone else to put their credit on the line for you.

Work on improving your credit before applying for a loan. If you can delay your credit card or loan, you can spend that time working to improve your credit score.

Start your credit efforts by ordering your credit reports from all three credit bureaus (Equifax, Experian, and TransUnion). Pay off any delinquent accounts and reduce your balances to build a better credit score. Avoid opening any new accounts in the months before you apply for a loan. Taking on new debt right before you apply for a loan makes you a riskier loan candidate, even if you're a prime borrower.

Article Sources

  1. Experian. "2019 Consumer Credit Review." Accessed March 6, 2020.