How Do I Know if I’m a Subprime Borrower?

How Do I Know if I’m a Subprime Borrower? article image.

A subprime borrower is someone whose credit score falls below a certain threshold and may present a greater risk to lenders. There isn't a single point at which a credit score crosses into the subprime range because lenders often have their own definitions, but generally these borrowers pay more than "prime" borrowers when they take out a loan or get a credit card.

Experian reviewed consumer credit scores during the first quarter of 2021 and found that about 30% of consumers fall into the subprime category (a FICO® Score of 669 or lower for our analysis). This was a decrease from 34% during the same period in 2020.

Having a subprime credit score could make borrowing money more difficult or expensive. However, while it's important to know where your credit stands, a low credit score isn't something that has to stick with you forever.

What Is a Subprime Borrower?

Subprime is a general term that lenders use 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.

As a rule of thumb, someone with a FICO® Score of 669 or lower is often considered a subprime borrower. In contrast, a prime borrower typically has a credit score of 670 or higher.

But some lenders break down the categories into more specific groups based on credit score ranges, such as: 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.

While lenders use these terms to explain different applicants' or borrowers' risk profiles, you may be more familiar with the FICO credit score ranges that Experian uses when discussing what's a good credit score: poor (300-579), fair (580-669), good (670-739), very good (740-799) and exceptional (800-850). Subprime borrowers fall into the fair and poor categories on the FICO scale.

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. 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.

Can I Get Credit if I'm a Subprime Borrower?

If your credit score is in the subprime range, you may have fewer options for borrowing money. Some lenders work specifically with subprime borrowers, however, and there are measures you can take to move from a subprime to a prime credit score.

While subprime credit products are typically considered more expensive, your costs may 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.

How Can I Improve My Credit Score?

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 (such as late payments or collection accounts) that are hurting your credit scores.

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

  • Make on-time payments. Your debt payment history is the most heavily weighted factor in your FICO® Score. If you miss payments or pay late, your credit score will suffer. Even missing payments on accounts that generally don't help you build credit can hurt you. If a past-due account, such as an unpaid medical bill, is sent to collections, it could wind up on your credit report and hurt your credit score.
  • 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.
  • 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.
  • Add more positive information to your credit report. Sign up for the free Experian Boost tool to add positive payments for your utility, cellphone and popular streaming service bills to your Experian credit report. This could help you instantly increase your FICO® Score powered by Experian.

Building and repairing your credit can take time. Depending on where you're starting and what's impacting your score, it could be months or years before your credit scores move out of subprime territory. However, the impact of negative information tends to diminish over time, and the sooner you focus on improving the credit, the sooner you could have a prime score.

Free Credit Monitoring and Preapprovals

If you want to monitor your progress, you can sign up for free credit score tracking from Experian. Once you create an account, you can also look for credit cards and loan offers that are matched to your profile. If you want to take out a loan, you could submit a preapproval request, and Experian will help you find loan offers from partner lenders. Getting preaproved doesn't impact your credit scores, and you can then compare the offers to see which will work best.

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