How to Know if You’re a Subprime Borrower

What Is a Subprime Borrower?

Subprime is a general term for borrowers who have a lower credit score and may have trouble making all their loan payments on time. But people can, and often do, move between categories as credit scores fluctuate depending on how they're managing credit and how much debt they're carrying at any given time.

Some lenders also break down the credit score range, generally 300 to 850, into smaller groups: deep subprime, subprime, non-prime or near-prime, prime and super-prime. They often use these designations when deciding which interest rate to offer a prospective borrower, what the loan or credit card terms will be and whether they'll approve the borrower's application at all.

Learn more: What Does Subprime Mean?

What Is a Subprime Credit Score?

What qualifies as a subprime credit score can depend on the lender and the type of score. But as a rule of thumb, someone with a FICO^® Score^Θ under 670 or a VantageScore^® credit score under 601 has a subprime score.

Source: Experian, based on VantageScore 4.0 credit scores

While lenders may use the prime-related terms to categorize risk profiles, you may be more familiar with commonly used terms, like: poor, fair, good, very good and exceptional (for FICO^® Scores). Subprime borrowers have scores below the good score threshold.

No matter the naming convention, the idea is the same: Someone who has a lower credit score is statistically more likely to miss a debt payment in the future than someone with a higher credit score. As a result, subprime borrowers tend to have a more difficult time qualifying for new credit accounts. When they are approved, they may have to pay more in fees and interest.

Learn more: Why Are My Credit Scores Different?

What Makes Someone a Subprime Borrower?

Anything that can lower your credit score might push you into subprime territory. Common examples include:

• A short credit history
• Recent late payments
• A history of missing payments
• A high credit utilization rate
• Collection accounts
• Filing for bankruptcy

Depending on where your score was initially, a few mistakes or negative items might not lower it all the way into the subprime range. In some cases, you also might be able to quickly increase your score to bring you back into a prime or super-prime range. For example, if your score dropped because of high credit utilization, bringing your credit card balances down might help increase your score the next month.

Learn more: Actions That Can Lower Your Credit Score

Subprime Borrowing Options

You may have fewer options for borrowing money while your credit score is in the subprime range. However, some lenders work specifically with subprime borrowers, and other lenders may be willing to lend you money in certain circumstances.

Here are four borrowing options that may be available:

• Unsecured subprime cards: Some card issuers offer unsecured subprime cards, but they tend to have high fees and interest rates. You also won't necessarily receive rewards or benefits that are commonly available on credit cards for cardholders with higher credit scores.
• Secured credit cards: A secured card works like other credit cards, but you send the issuer a refundable security deposit when you open your account. The deposit generally determines the account's credit limit, and the issuer can keep the money if you don't repay the debt. This arrangement decreases the credit risk for issuers, which makes qualifying for a secured card easier.
• Some installment loans: Some lenders offer loans with low credit requirements, but you want to review the terms carefully. Options like payday loans and auto title loans are generally a last resort because they can be particularly expensive. Others, like payday alternative loans, might offer more favorable terms.
• Cosigned loans: You could also ask a close friend or family member who has good credit to cosign a loan. If they agree, their good credit can help you qualify for the loan and a better interest rate, but they will also be legally liable for the debt and the loan can affect their credit.

Even within the subprime range, having a higher score can help you qualify for more options and better terms.

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How Being a Subprime Borrower Affects Interest Rates

The credit limit or loan amount, terms and interest rate you receive on a new credit card or loan will often depend, in part, on your credit scores. Generally, having a lower score will lead to a higher interest rate and fees. But your costs will also depend on how you use them.

For example, you might get a credit card that's offered to people with bad or poor credit, and the card could have a high variable annual percentage rate (APR). But you may be able to avoid paying any interest if you pay your bill in full each month.

With a subprime loan, you may be stuck with a high origination fee and interest rate. However, once you improve your credit, you may be able to refinance the loan to get a lower rate.

Learn more: What's a Good Interest Rate on a Personal Loan?

How to Become a Prime Loan Borrower

If you have a credit score that's in the subprime range, you may be new to credit or have negative marks in your credit history that are hurting your credit scores.

Here are a few things you can do to help improve your credit scores:

1. Check your credit reports. Reviewing your credit can help you determine why your score is in the subprime range. You can get a copy of your Experian credit report for free, and your account will tell you what's helping and hurting your score the most.
2. Open and use credit accounts. Having open and active credit accounts that are in good standing can show lenders you can responsibly manage credit. Different types of accounts can be helpful for people who are new to credit or rebuilding their credit, including secured credit cards and credit-builder loans.
3. Make on-time payments. Your payment history is one of the most important factors for your credit scores. If you miss payments or pay late, your credit score can suffer. Even missing payments on accounts that generally don't help you build credit can hurt you. If a past-due account is sent to collections, it could wind up on your credit report and hurt your credit score.
4. Add more positive information to your credit report. Sign up for Experian Boost^®ø, a free feature of your Experian account, to add positive payments for your utility, phone, eligible rent, certain insurance and popular streaming service bills to your Experian credit report. This could help you instantly increase your credit scores powered by Experian data.
5. Keep credit card balances low. High credit card balances can lead to a high credit utilization rate, which is the percentage of available credit you're using on those accounts. Paying down your balances and then paying your credit card bill in full every month can help you quickly improve your credit.
6. Pay off collection accounts. Unpaid collections can ding your credit scores and make it difficult to get new credit accounts. Even though paid collections may stay on your credit reports, newer credit scoring models may ignore paid collection accounts when calculating your scores.

Learn more: How to Build Credit: A Comprehensive Guide

Frequently Asked Questions

The Bottom Line

If you checked your credit and found out that you have a subprime credit score, you should try to figure out what's affecting your credit and how you can improve it. Although you likely can't drastically increase your credit overnight, taking small and consistent steps can help you move toward a prime score.