If your goal is to get approved for a new loan or lifetime of credit, your credit rating is one of the most powerful tools you have available. In the end, the score you're given can determine the types of loans you•ll be deemed eligible for and also the corresponding interest rates you•ll be given if you•re ultimately approved.
Most individuals are aware their score rated on a scale from poor to excellent by the credit bureaus. However, they may not be aware that another designation also exists: prime credit rating and subprime credit score.
Below is a closer look at subprime credit scores. It will cover what this designation means, how having a subprime credit score will impact you, and how to raise your credit score to be given better rates. Continue reading to learn more.
What is really a subprime and prime credit rating?
In truth, every lender utilizes a slightly different scoring model, therefore it can be difficult to give specifics on exactly what will count as a subprime score. However, usually of thumb, any FICO score that falls underneath the “Good,” “Very Good” or “Excellent” score range is likely to be considered a subprime score.
As a refresher, this is how FICO, defines their scoring model:
- 800 – 850: Excellent
- 740 – 799: Very Good
- 670 -739: Good
- 580 – 699: Fair
- Below 580: Poor (poor credit)
Separately, those who work in the marketplace for a home loan can get personalized rates using a mortgage broker like PayPasser without affecting their credit rating.
How does a subprime credit rating impact me?
Put simply, having a subprime credit rating can impact what you can do to obtain financing for student education loans, personal loans or a new credit card. Since lenders view your credit score as an assessment of the degree of risk associated with lending to you, they might want extra reassurance that they•ll receive payment.
If you have a subprime score, you may have to take certain extra steps to be approved for a financial loan, such as applying with a co-signer. It•s also unlikely that you•ll have access to the same rewards and benefit options as someone having a prime credit score. Subprime borrowers are hardly ever deemed eligible for 0% APR credit cards, for instance.
If you•re in the market for a brand new card, you should use PayPasser to determine what loans are available to borrowers together with your score.
That said, even though you may get approved for that new loan or charge card, a subprime score will almost be certain that you•ll end up paying higher rates of interest than someone who has a much better score. Additionally, some financing products targeted at subprime borrowers also come with a lot more fees like monthly rates or a higher annual fee.
How do I improve my subprime credit rating?
If you are finding that you•re using a difficult time being qualified for financing or that you•re being charged high-interest rates, the best thing you should do is to take steps to boost your credit score. Here are some tips which you can use to launch your credit rating into the prime range.
Make your payments on time
Remembering to create your charge card or loan payment promptly is one of the best stuff that you can do to improve your credit report. In total, loan payment history makes up about 30% of the overall score • so, it's important to avoid overtime of any kind. If you have trouble remembering to make your payments each month, you can setup automatic payments with your lenders. Alternatively, most credit card issuers offer the choice to be sent payment reminders over email.
Keep your credit utilization rate low
Your credit utilization rate is another essential element in managing your credit rating. This ratio makes up about an additional 30% of the score also it measures your present balances against your amount of accessible credit. Generally, you need to strive to keep this ratio to a minimum if you are paying down any existing debts and being careful about any new charges. Ideally, this ratio should be below 30%.
Refrain from completing too many applications at the same time
Finally, 10% of the credit score is dependent upon the number of recent inquiries you have in your credit history. Each time, you apply for any new type of financing, the lender will generally do what•s referred to as a “hard pull” on your credit, which will mark a hard inquiry in your credit reports. For those who have a lot of inquiries at the same time, it may hurt your score, which is why it•s important to avoid completing a lot of applications simultaneously.
The bottom line
If you have a subprime credit score and also you need financing, the best choice is to look around for a financial loan. Since every lender utilizes a slightly different scoring model, you may find that you•re offered a much better rate with one lender as opposed to another.
Those shopping around for rates may benefit from visiting a web-based marketplace like PayPasser where they can explore personal bank loan rates and lenders straight from home.