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What is a subprime credit score?

A subprime credit rating can affect your ability to get financing for student loans, personal loans or a new credit card. (iStock)

If your goal is to get a new loan or lifetime approved, your credit score is one of the most powerful tools at your disposal. After all, the score you get can determine what types of loans you will be eligible for and the corresponding interest rates you will receive if you are eventually approved.

Most people are aware that their scores are rated on a scale from poor to excellent by credit bureaus. But they may not be aware that there is another term: prime credit score and subprime credit score.

Below is a closer look at subprime credit scores. It will cover what this term means, how a subprime credit rating will affect you and how you can improve your credit score to get better rates. Keep reading to learn more.

What is a subprime and prime credit score?

In fact, each lender uses a slightly different scoring model, so it can be difficult to give details of exactly what will count as a subprime score. However, as a rule of thumb, any FICO score that falls under the “Good”, “Very Good” or “Excellent” score range will be considered a subprime score.

As a refresher, here’s how FICO defines their points model:

  • 800 – 850: Excellent
  • 740 – 799: Very good
  • 670 -739: Good
  • 580 – 699: Fair
  • Under 580: Bad (bad credit)

Separately, in the market for a home loan, they can get personal interest rates with the help of a mortgage broker like Credible without affecting their credit score.


How does a subprime credit rating affect me?

Simply put, having a subprime credit rating can affect your ability to get financing for student loans, personal loans or a new credit card. Because lenders see your credit score as an assessment of the level of risk associated with lending to you, they may want extra assurance that they will receive payment.

If you have a subprime score, you may need to take some extra steps to be approved for a loan, such as applying with a co-signer. It is also unlikely that you have access to the same rewards and benefit options as someone with a first-class credit score. Borrowers for subprime are rarely considered eligible for 0% APR credit cards, for example.

If you are looking for a new card, you can use Credible to see what loan amounts are available to borrowers with your score.

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That said, even if you are approved for the new loan or credit card, a subprime score will almost guarantee that you will pay higher interest than someone who has a better score. In addition, some financing products aimed at subprime borrowers also come with extra fees such as monthly service fees or a higher annual fee.

How do I improve my subprime credit score?

If you find that you have difficulty getting approved for financing or that you are being charged high interest rates, the best thing you can do is take steps to increase your credit score. Below are some tips that you can use to start your credit score in the prime area.

Make your payments on time

Remembering to make your credit card or loan on time is one of the best things you can do to improve your credit history. In total, the loan payment history accounts for 30% of your total points – so it is important to avoid late payments of any kind. If you have trouble remembering to make your payments each month, you can set up automatic payments with your lenders. Alternatively, most credit card issuers offer the option of sending loan payment reminders via email.


Keep your credit utilization rate low

Your credit utilization rate is another important factor in determining your credit score. This ratio accounts for an additional 30% of your points and it measures your current balances against your total amount available. In general, you should strive to keep this ratio as low as possible by paying down existing debts and being wary of any new fees. Ideally, this ratio should be less than 30%.

Refrain from filling in too many applications at once

Finally, 10% of your credit score is determined by the number of recent inquiries you have on your credit reports. Each time you apply for a new type of financing, the lender will generally do what is called a “hard pull” on your credit, which will mark a harsh request on your credit reports. If you have too many requests at once, it can damage your score, so it is important to avoid filling in too many applications at once.

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The point

If you have a subprime credit score and need financing, the best way to shop for a loan is. Because each lender uses a slightly different points model, you may find that you are offered a better interest rate with one lender as opposed to another.

Those who shop around for interest rates can benefit from visiting an online market like Credible where they can explore personal loans and lenders from home.

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