One of the most important things that your credit score can tell a lender is what type of borrower you are – and borrowers are typically grouped into five different categories. These include deep subprime, subprime, near-prime, prime and super-prime.
It should go without saying that the better your credit score, the better it bodes for your financial potential. Those with good credit that fall into the prime and super-prime category of borrowers are likely to be quickly approved for loans, and at the best possible interest rates offered. However, it’s estimated that about one-third of all Americans fall into the subprime category – and that means that they have some work to do to improve their credit score and ensure that they’re presenting themselves as a better buyer.
In order to show the contrast between subprime and prime borrowers, we crunched some of the latest data from Experian. Here’s a closer look at how these two categories of buyers stack up against one another.
Subprime Borrowers
Average FICO score: 578
Average credit card balance: ~$5,800
Average estimated income: ~$68,600
Total debt: ~$55,000
Prime Borrowers
Average FICO score: 767
Average credit card balance; ~$6,230
Average estimated income: ~$98,200
Total debt: ~$110,000
Key Differences
As you can see from the comparison above, prime borrowers outpace subprime borrowers in just about every major category. And arguably the most important factor in each of the above scenarios is the FICO score. Though prime borrowers have a larger amount of overall debt and a greater overall credit card balance, their credit score reflects that they’re reliable borrowers and that they’re more likely to pay bills on time compared to subprime borrowers. And while their average credit card balance may seem high, prime borrowers also likely have larger credit limits because of their good credit score standing. Subprime borrowers, on the other hand, have less opportunity due to a lower overall FICO score.
We should also note that what you earn has nothing to do with your credit score – it’s all about the financial habits that you’ve established.
Going from Subprime to Prime
Like we said in the opening, about one-third of borrowers are considered subprime – and those who are should strive to improve their credit score so that they can get into that prime category. By committing to improving and having a plan, you should be able to see a major difference in your score within just a few months. Here’s a look at some tips to getting it done:
- Make payments on time: Payment history is one of the largest factors that make up your credit score.
- Establish a good mix of credit.
- Pay down debt and lower your credit utilization ratio. Make a plan to pay off higher debt first to save more in the long-term.
- Check your report: This can help you detect any errors and help you monitor the progress that you’ve made.
