Borrowers generally fall into two main types of classifications, depending on their credit score — prime or subprime.
Someone with prime credit may not have a perfect credit score, but it s high enough to qualify for the best, or prime, interest rates.
For this reason, prime borrowers are likely to get approved for the best credit cards and top rewards, but it may come at a higher interest rate than someone who has super-prime credit.
A prime credit score falls within the range of to , according to data from the federal Consumer Financial Protection Bureau CFPB Consumer Credit Panel.
It s important to note, however, that what classifies as a prime credit score can vary between lenders and different organizations. For example, Experian defines prime borrowers as those with credit scores of or above.
Whichever bucket you fall into, a good rule of thumb is that those with good credit are considered prime consumers.
If you have prime credit, lenders see you as more likely to make your monthly loan payments and credit card bills on time and in full than someone who is subprime. They have a greater confidence in lending you credit because you pose less of a risk of defaulting.
As a prime borrower, you will receive higher credit limits than those who are subprime, but you may not get offered the most favorable terms, such as the lowest interest rate on your mortgage, like someone with a super-prime score would.
To see an example of this, let s look at current interest rates on a -year fixed mortgage. For context, a -year fixed mortgage means a mortgage that is completely paid off in years at an interest rate and monthly payment that stays the same over the life of the loan.
Using FICO credit scores and their home purchasing data from Informa Research Services, we calculated what the national average APR and monthly payment would be for homeowners of various credit score ranges on a $, mortgage. The far-left column represents borrower profiles based on credit score, as defined by the CFPB Consumer Credit Panel.
As you can see above, the interest rates increase slightly as the credit score ranges go down. The monthly payments, in accordance with the interest rates, increase as well. You ll notice that a prime borrower would fall at least at the – mark, incurring an interest rate of .% and making a monthly payment of $, — a savings of between $ and $ per month compared to what someone with near-prime credit would pay.
Just like super-prime borrowers, prime borrowers have many options when it comes to choosing which credit card to apply for.
Prime credit consumers should take a look at their spending habits when they go shopping for a new credit card. Three of the four cards above offer rewards, but in different categories.
For avid travelers, the Capital One Venture Rewards Credit Card is a great pick that will earn you X miles on hotel and rental cars booked through Capital One Travel℠ and X miles per dollar on every other purchase.
The Chase Freedom, on the other hand, puts $ cash back into your wallet when you spend $ on purchases in your first three months, which is on the lower end for sign-up bonus spending requirements.
For no annual fee, cardholders of the well-rounded Wells Fargo Propel American Express Card receive X points on dining including ordering in, gas, transit, flights, hotels, car rentals and streaming services including Apple Music, Hulu, Netflix and Spotify Premium and X points on all other purchases. Points can be redeemed for travel, cash, gift cards and more.
And if rewards aren t at all important to you, the Citi Simplicity Card is your best bet with an introductory % APR for the first months on balance transfers and the first months on purchases after, .% to .% variable APR.
With the average FICO score in the U.S. hitting a record high of in , latest consumer credit data shows that the average borrower classifies as having prime credit. This indiates that most consumers with a credit score can likely access lending when they need it — a noteworthy consideration for the current global pandemic and economic recession we re in, when access to funding has definitely become a bit more limited.
Despite the current situation, know that having prime credit is a good goal to aim for since it will open the doors for many types of credit cards and loans.
While you work on maintaining your good credit score — by paying your bills on time and in full every month and keeping your credit utilization low — know that you are on the path forward to having super-prime credit.
Information about the Capital One® Venture® Rewards Credit Card, Wells Fargo Propel American Express® Card, Citi Simplicity® Card, and Chase Freedom® has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.