How to Know If You're a Prime Borrower
Lenders classify potential borrowers into two categories: prime and subprime. Generally speaking, it's much easier to get applications approved as a prime borrower than as a subprime borrower.
What Is a Prime Borrower?
Prime borrowers are borrowers who are least risky of defaulting on a credit card or loan obligation. Using the FICO scale 300 to 850, prime borrowers typically have a score greater than 620. The exact credit score cutoff for prime borrowers could be higher depending on the lender and the credit scoring model they're using. Borrowers with credit scores in the high 700s and 800s are almost always considered to be prime borrowers.
Benefits of Being a Prime Borrower
Being a prime borrower makes you a much more attractive loan candidate. Borrowers with the lowest risk are able to be approved for lower interest rates. These borrowers can also get approved for higher loan amounts or credit limits and lower down payments. A good credit score may also give a prime borrower more negotiating power with credit card and loan terms.
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 with excellent credit.
Other Borrower Classifications
Borrowers who aren't considered prime can also be classified as super prime, borrowers with excellent credit scores, i.e. 720 and above, and subprime, which are borrowers whose credit scores fall below 620. Some credit scoring models may also define “near prime” borrowers whose credit scores aren’t quite prime but aren’t as low as subprime.
How to Become a Prime Borrower
Prime borrowers generally have fewer 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 towards 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. 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 account.
Borrowing When You’re Not 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 house or car of a higher value.
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.
Start your credit efforts by ordering your credit reports from all three credit bureaus. 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.