What Credit Scores are Subprime?

To an extent, your credit score is as important as your education. If you have graduated from high school and have earned a degree at a prestigious college, you may look like a good candidate for a good job with high salary, health care benefits, and the lot. In comparison, if you have a good credit score, you may look like a good candidate to receive a large loan.

The Fair Isaac Corporation, or FICO, has the most widely used credit score model in the US. The range of possible FICO scores is between 300 and 850. If your score is 620 or lower, you are considered subprime. This means you are unlikely to receive a prime loan because lenders see you as a risk of not paying back the loan. It doesn’t mean you can’t get a mortgage or an auto loan or a new credit card; however, the loan you do receive will involve more risk.

To be considered subprime, your FICO score has to be 620 or lower. This isn’t just some random number being pulled out of the air. The score involves your credit history as well as your current debt. Some reasons your score may be at 620 or below include two or more late loan payments within the past year; a judgment, foreclosure, repossession, or non-payment of a loan; bankruptcy in the past five years; high default probability evidenced by your credit score; or even inaccuracy of your credit line data. If any of these apply to you, you may get a subprime FICO score.

Because someone with a subprime lender is viewed as riskier than prime borrowers, a subprime loan will have a premium. A subprime mortgage loan will have a higher interest rate than a prime loan, and a credit card obtained by a subprime loan will have higher late fees. Subprime mortgage loans may come with similar payment options as prime loans, such as “interest-only payments” (allowing you to pay just interest for a period of time), a “pay-option” (allowing you to choose your monthly payment), or a “hybrid” (a mortgage loan having an initial fixed interest rate that eventually becomes an adjustable rate). However, you are classified as “subprime,” meaning there is some expectation that you will eventually have trouble.

Here’s the thing about a subprime loan. You get one when your credit score is low. But, if you make your payments on time and eventually pay back the entire loan, your credit score will go up, meaning you will be eligible for a prime loan in the future. If you can pay it back, a subprime loan can be a boon to you, showing lenders that you are responsible with lent money.

David Pilley

David Pilley

David Pilley is a May 2010 graduate of the University of North Carolina at Chapel Hill, with a B.A. in communication studies and a creative writing minor. He is a native of Raleigh, North Carolina.

He played clarinet for the Marching Tar Heels in 2005 and 2006. He also volunteered for STV, the student-run television station at UNC-Chapel Hill, in the spring of 2010. He shot video, wrote scripts, and acted for “Off the Cuff,” UNC’s longest running sketch comedy show. He has the rare distinction of having lived in a dorm all four years of his undergraduate college career. He was also on Franklin Street on the night of April 4, 2009. His future plans are to pursue a master’s degree in journalism and to one day work for the media as a sports journalist or broadcaster.

Being one of eight children, David realizes finance is an important topic to everyone, regardless of his/her knowledge of the subject. His interests are in personal finance, budgeting, and savings.

In his spare time, David enjoys watching sports and standup comedy, as well as doing crossword puzzles and writing in the first person. He also thoroughly enjoys trivia and, one day, hopes to participate on the game show Jeopardy!, where he will try to break Ken Jennings’ 74-game win streak.
David Pilley

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