With more than a third of Americans having a credit score considered subprime, it's worth taking the time to understand where you stand.
In general, there are five different types of borrowers that financial institutions categorize based on credit score. These categories help them to determine who is the least and most risky to lend money to because it shows them who is more likely to pay back the money they borrow.
If you have a credit score, your profile falls into one of the following categories: super-prime, prime, near-prime, subprime and deep subprime.
For consumers, knowing your classification is important because it determines how easy it is for you to access new credit cards or loans. In addition to prime borrowers having an easier time getting approved for credit, they are also offered the best terms and lowest interest rates. Subprime borrowers, on the other hand, are more limited when it comes to credit because they have a lower credit score.
Select wanted to narrow in on what exactly the average subprime borrower is dealing with financially. To get a clear idea of what their finances look like, we asked Experian, one of the three main credit bureaus, to share a snapshot of subprime data across consumers. Here is what we found.
Snapshot of a subprime borrower: their credit score
Experian's most recent data from Q1 2020 shows that subprime borrowers have an average 578 FICO credit score.
On the FICO credit score scale ranging between 300 on the low end to 850 on the high end, a 578 falls under "very poor."
- Very poor: 300 to 579
- Fair: 580 to 669
- Good: 670 to 739
- Very good: 740 to 799
- Exceptional: 800 to 850
Consumers with this low of a credit score will have a difficult time getting approved for new credit, but there are products made for specifically this profile type that can help them build their credit back up. Secured credit cards are similar to traditional credit cards in that you are given a credit limit and charged interest on unpaid balances, but they are easier to qualify for with a low credit score.
Most secured cards require you to make a security deposit upfront (usually $200) that acts as your credit limit and collateral in case you don't pay your bill. After establishing a record of on-time and in-full payments, many card issuers allow you to graduate from a secured to unsecured, or traditional, credit card and get your deposit back.
Select ranked our best picks for secured cards, and the Capital One Platinum Secured Credit Card is at the top. It has no annual fee and allows cardholders to qualify for making minimum security deposits starting at $49 or $99 and still receive at least a $200 credit limit.
The Capital One Platinum Secured Credit Card can help you build, or rebuild, your credit because you can be approved with no credit or bad credit.
- No annual fee
- Low minimum refundable security deposit starting at $49 to get a $200 initial credit line
- No rewards on purchases
- No welcome offer
- High APR
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- No annual or hidden fees. See if you're approved in seconds
- Building your credit? Using the Capital One Platinum Secured card responsibly could help
- Put down a refundable security deposit starting at $49 to get at least a $200 initial credit line
- You could earn back your security deposit as a statement credit when you use your card responsibly, like making payments on time
- Be automatically considered for a higher credit line in as little as 6 months with no additional deposit needed
- Enjoy peace of mind with $0 Fraud Liability so that you won't be responsible for unauthorized charges
- Monitor your credit score with CreditWise from Capital One. It's free for everyone
- Get access to your account 24 hours a day, 7 days a week with online banking to access your account from your desktop or smartphone, with Capital One's mobile app
- Top rated mobile app
Balance transfer fee
- $0 at the Transfer APR, 4% of the amount of each transferred balance that posts to your account at a promotional APR that Capital One may offer to you
For those looking for a basic secured card with no annual fee, the Citi® Secured Mastercard® is your best option from a major bank. This card does require the typical $200 security deposit.
The Citi® Secured Mastercard® can help you establish a credit history, but if you're looking for rewards this isn't the card for you.
- No credit history requirement
- Minimum opening deposit of $200
- No rewards
- No welcome offer
Snapshot of a subprime borrower: Their income and debt levels
Subprime borrowers have, on average, an estimated $68,567 yearly income and an average $55,135 in total debt, according to Experian's Q1 2020 data.
Taking a deeper look into subprime borrowers' debt, we can see that they have a mix of credit in their name, including credit cards, store cards, student loans, car payments and mortgages.
Experian provided the below additional data for the average subprime consumer:
- Credit cards: 2.8
- Credit card balance across all cards: $5,805
- Additional retail / store credit cards: 2.2
- Retail / store credit card balance across all cards: $1,799
- Student loan balance: $36,389
- Auto balance: $18,815
- Mortgage balance: $163,505
While having a variety of credit accounts is healthy for your credit score, failing to make on-time monthly payments on this debt can really set you back. According to Experian, a person might have a credit score in the subprime range if they don't have a lot of credit history or if they have had negative information end up on their credit reports, like late or missed payments.
If you already have a mix of revolving credit (credit cards) and installment credit (student loans, auto loans, a mortgage), focus on paying at least the minimum each month on all your outstanding credit accounts. When you can, we recommend paying your credit card balances off in full each month as well so that you never pay interest.
