What Credit Score Is Needed For A Subprime Loan?
July 24th, 2012 | Author: Stephanie
[C]redit scoring may seem like a complicated science, but actually it is not. The general rule is that your creditworthiness is ranked on a scale of 300 to 800; the higher the score, the better the chance that a lender will grant you credit at favorable interest rates .
If your credit score is below 680, most lenders will consider you a “subprime” applicant rather than “prime.” Such terms might seem offensive, but keep in mind that the credit scoring system is a number. If you paid your medical bills late because of an unexpected crisis, the algorithm cannot determine that.
The formula calculates numbers based on the average age of your existing accounts, whether you have paid your bills on time, and how much debt you owe in comparison to your available credit. For example, if you have credit card limits of $20,000 and owe more than $10,000 on the accounts your credit score will suffer. The closer you get to “maxing out” your credit cards, the lower your score. So, you could be classified as subprime even if you always pay your bills on time.
Most lenders will still consider your credit application if your score is in the 600s; some
will deal with high 500s. Once you start getting around 550 or less, you have little chance of getting a loan or credit offer. In fact, the lower your credit score the greater your chance of being taken advantage by loan sharks. While credit card reform laws passed in 2009, it became much more difficult for credit card companies to charge subprime customers excessively high interest rates and fees. But your state might not have laws capping the interest rates that a car dealer, finance company, or payday lender can charge its customers.
So, if you have at least a 600 and want a new credit card, personal loan, car loan, or mortgage you might have a fair chance. In some situations, lenders will also review your income, assets, and how long you have been at the same job and the same residence.
Once you start getting below 600, your chances of getting any credit are fairly slim. Some credit card companies will issue you an account but require a security deposit. Likewise, some auto lenders will write a loan but require a down payment of at least $1,000. Also, because the lender will charge a subprime interest rate to alleviate their financial risks you will end up paying more for the car than someone with a good credit score.