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"Subprime" is a general term that describes credit products which don't require a good credit score and borrowers who don't have good credit scores. The specific definition or threshold can vary depending on the creditor or financial institution, but a subprime borrower is generally considered one who has a FICO® Score☉ below 670—in the poor to fair score range.
About 30% of U.S. consumers have a subprime credit score, according to Experian data from the first quarter of 2021, which is a decrease from 34% in 2020. If you're a subprime borrower, you may have more difficulty qualifying for a loan or credit card with favorable rates and terms. However, you may still have options, and you can take steps to improve your credit to become a "prime" borrower with more lender-desirable credit scores.
Who Is Considered a Subprime Borrower?
A subprime borrower is anyone who doesn't have good enough credit to qualify for a creditor's prime rates and terms. You might be a subprime borrower if you:
- Recently missed payments on credit accounts.
- Had a recent charge-off, repossession or foreclosure.
- Filed for bankruptcy in the last several years.
- Have a high debt-to-income ratio.
- Are new to credit and haven't established a good (or any) score.
However, subprime is a moving target. Each lender defines subprime and prime depending on their lending strategies and business goals. In addition to prime and subprime, some may use more nuanced terms, such as deep subprime, non-prime, near-prime and super-prime.
What's more, different lenders define subprime using different credit scoring systems, including multiple versions of the FICO® Score or VantageScore® as well as custom scores designed by the lender.
What Does Subprime Credit Mean?
Subprime credit may refer to the loans and credit products that financial institutions offer to subprime borrowers. These often have higher interest rates, more fees and lower borrowing limits than credit accounts for prime borrowers.
While subprime and prime are industry terms, you might see subprime credit accounts advertised as accounts for people with no or poor credit, or for people who are rebuilding their credit. These can include:
Subprime Credit Cards
Subprime credit cards include secured credit cards, which require you to send the issuer a refundable security deposit to open your account, and unsecured cards for people with poor credit. These cards may have annual or monthly fees and tend to lack generous cardholder benefits or rewards.
Subprime Mortgages
Subprime mortgages are home loans that may have higher closing costs, down payments and interest rates, as creditors are taking on more risk when they lend to borrowers with lower credit scores. Subprime borrowers may be more likely to be offered adjustable-rate mortgages, which can be riskier than fixed-rate loans because their interest rate could rise in the future.
Subprime Auto Loans
While you may be able to get an auto loan with bad credit, subprime auto lenders may require a higher down payment and charge a relatively high interest rate. You may also receive a longer repayment term, which can lower your monthly payment but leads to paying more interest overall.
What's the Difference Between Subprime and Prime?
The simple answer is that prime borrowers have better credit scores than subprime borrowers.
While some lenders may offer loans to people in either category, the loan offers for prime borrowers will likely have lower interest rates, fewer fees and higher loan limits. There are also lenders that focus on particular segments of borrowers and specialize in lending to either subprime or prime borrowers.
How to Improve a Subprime Credit Score
If you find your credit scores in the subprime range, know that they don't have to be stuck there forever. Whether you're new to credit or have a poor credit score because of negative marks in your credit history, you can take steps to improve your score.
- Make bill payments on time. Missing a payment by 30 days can add a late payment to your credit history, which could negatively impact your credit score for up to seven years.
- Pay down credit card balances. High balances can lead to a high credit utilization ratio, which is an important factor in your score.
- Add positive information to your credit file. Making loan and credit card payments on time can help you add positive information to your credit file. You could take out a credit-builder loan or secured credit card if you don't have a credit account. And use Experian Boost®ø to add phone, utility and popular streaming service payments to your Experian credit report.
- Don't apply for too many new accounts. Each credit application can lead to a new hard inquiry, which may hurt your score even if the creditor declines your application. However, you can comparison shop for certain types of loans without doing additional damage to your score.
The exact amount of time it takes to move from subprime to prime will depend on your unique credit file.
Monitor Your Progress
Checking and monitoring your credit can give you more insight into what's impacting your credit and lets you track your progress. Experian gives you free credit report and score monitoring with real-time alerts and an updated report every 30 days. You can also learn about the specific factors that are impacting your FICO® Score so you can focus on the factors that may be most important to improving your score.