Lenders who extend your credit, whether in the form of a car loan or a new credit card, review your credit score to decide how likely you are to pay off what you borrow. Your credit score falls between 300 (bad) and 850 (excellent).
But to facilitate loan decisions, financial institutions classify what type of borrower you are by dividing consumers into five categories based on their credit score.
If you have a credit score, your profile falls into one of the following categories: superprime, prime, quasi-prime, subprime, and deep subprime.
These names describe their position compared to the types of borrowers who qualify for the best interest rates and financial products.
In recent decades, banks have come under scrutiny for using these categorizations to justify discriminatory mortgage loans and predatory loans (characterized by unreasonable rates, fees, and payments), two issues at the center of the high-risk housing crisis from 2008.
However, the categorizations are intended to help both lenders and borrowers understand what types of credit products you qualify for, what type of risk both parties assume, and how terms such as APR and your loan amount are determined. .
So, before you borrow money, it helps to know what type of borrower you currently are.
Using the latest data from the Federal Office of Consumer Financial Protection (CFPB), CNBC Select breaks down the five different types of borrowers by credit score. Below, we take a look at the credit scores that make up these five categories of borrowers, why it matters, and what kinds of credit card options are likely available to you.
Breakdown of credit scores
The CFPB Consumer Credit Panel defines the five different types of borrowers by the following credit score ranges.
- Deep subprime: Credit scores below 580
- Subprime: Credit scores between 580 and 619
- Close cousin: Credit scores between 620 and 659
- Principal: Credit scores between 660 and 719
- Superprime: Credit scores of 720 or more
These definitions may vary between different organizations. For example, the Experian credit bureau rated high-risk borrowers with FICO credit scores between 580 and 669. A primary borrower, in that case, is anyone with a score higher than 669.
A good rule of thumb is that anyone with bad, fair, or average credit scores is considered high-risk borrowers, while those with good or excellent credit are considered top-notch.
Because it is important
Not only is it important to know what level of risk it represents for lenders, but knowing your borrower rating helps you apply for loans or credit cards.
During a recession when credit is tight, certain borrowers have more access to new, cheaper credit.
Super prime and prime borrowers are more likely to qualify for the best credit cards, higher credit limits, lower interest rates, and more favorable terms. It will be easier to finance a college education, buy a home, or get generous enrollment bonus offers, like an introductory period of 0% APR.
On the other hand, high-risk and high-risk borrowers are less likely to qualify for new credit cards and more likely to receive much higher interest rates or have to make higher down payments to finance something like a new home. .
How knowing your type of borrower can benefit you
Although a prime borrower with good or excellent credit has a better chance of approval than someone who is high risk, there are credit cards that exist specifically for those with bad credit or no credit history.
Now that you know the different types of borrowers, here are some examples of the best credit cards for each type so you can compare and contrast their characteristics.
- For high-risk or high-risk borrowers: If you are new to credit or are working on rebuilding bad credit, start with a secured credit card. These cards are for beginners and don’t require a high credit score to qualify, but you will likely have to pay a security deposit in advance (usually $ 200) that acts as your credit limit. Some cards to consider are Capital One® Secured for a low deposit, DCU Visa® Platinum Secured Credit Card for a low variable APR (if you have a balance, which we don’t recommend) and OpenSky® Secured Visa® Credit Card without credit verification when you submit the application.
- For near-prime borrowers: For those with fair or average credit who are not yet considered a “prime” borrower but who are working there, you can switch from a secured credit card to an unsecured one. The Petal® Visa® Credit Card offers no fees whatsoever, the Capital One® QuicksilverOne® Cash Rewards Credit Card has a cash back rewards program and the Capital One® Platinum Credit Card comes with travel benefits and no annual fee.
- For major borrowers: If you have a good credit score, you are likely to be considered a primary borrower, opening the doors to many different types of credit cards. Some of our favorites are the Capital One® Venture® Rewards Travel Credit Card, the Chase Freedom® for a Cash Back Welcome Bonus, the Citi Simplicity® Card for an introductory period of 0% APR and the Wells Fargo Propel American Express® Card with no annual fee and rewards.
- For superprime borrowers: You don’t need to have great credit to qualify for the best credit cards, but it can help you get a lower interest rate. And if you have an excellent credit score, you might as well take advantage of it. The American Express® Gold Card is ideal for frequent travelers, while the Citi® Double Cash Card offers cash back. Two popular cards in this category are also the Chase Sapphire Preferred® Card and Chase Sapphire Reserve®, which come with welcome bonuses and luxury benefits.
Bottom line
If you are not yet classified as a primary borrower, you are not alone. In fact, a 2019 Experian study found that more than a third of Americans have a credit score that is considered high risk.
Once you qualify for one of the credit cards available to less than prime borrowers, you can work to build a better credit score and move up. When you use your credit card, keep your balances low and be sure to always pay your bills on time.
Information on Capital One® Secured, DCU Visa® Platinum Secured Credit Card, Citi Simplicity® Card, Petal® Visa® Credit Card, Capital One® QuicksilverOne® Cash Rewards Credit Card, Capital One® Platinum Credit Card, Capital One® Venture® La Rewards credit card, Chase Freedom® and Wells Fargo Propel American Express® card have been independently collected by CNBC and have not been reviewed or provided by the card issuer prior to publication.
Editorial note: The opinions, analyzes, reviews or recommendations expressed in this article belong exclusively to the editorial staff of CNBC Select and have not been reviewed, approved or endorsed by any third party.
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