Subprime credit is a classification used by lenders and credit scoring models to describe a consumer credit file that is considered higher risk relative to the broader population, often due to past delinquencies, limited credit history, or lower credit scores.
Updated JanuaryPart of the Credit Scores topic hub
In detail
Subprime credit is a descriptive category used by lenders and credit scoring models to indicate a consumer credit file that is viewed as higher risk compared with the general population. It is not a single score or a permanent label, but rather a relative classification based on the information in a credit report. Credit scoring models such as FICO and VantageScore produce scores across a range, and lenders often divide that range into bands. The subprime band typically falls in the lower portion of the overall range, though the exact boundaries are set by each lender or model and can vary. Several factors can contribute to a file being classified as subprime. These include a history of late payments, accounts sent to collections, public records such as bankruptcies, high credit utilization, or a limited credit history. Because subprime indicates higher perceived risk, lenders may offer different terms to consumers in this category, such as higher interest rates, larger down payments, or additional fees. The classification is based on reported data and can change as new information is added to a credit report over time. Federal law, including the Fair Credit Reporting Act, governs how credit reporting companies handle and disclose this information.