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If you have deep subprime credit, you're considered a risky borrower—here's what you need to know

CNBC Select reviews what it means to have deep subprime credit, the credit scores that make up this type of borrower and how to improve your situation.

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Your borrower risk profile can fall into one of the five following categories: super-prime, prime, near-prime, subprime and deep subprime. 

Consumers who classify as deep subprime fall into the bottom tier of credit scores, which range from 300 to 850, and are considered the most risky to lenders.

The credit score of a deep subprime borrower

Deep subprime borrowers have credit scores that fall below 580, as defined by the Consumer Financial Protection Bureau (CFPB) Consumer Credit Panel.

While credit score categories can vary between financial institutions, anyone classified as deep subprime has a very low credit score.

Banks and lenders consider consumers who fall into the deep subprime category to be high risk, with a greater likelihood of defaulting on their payments. For this reason, deep subprime consumers have a hard time getting credit and, if they do, it comes at a high cost.

What it means to have deep subprime credit

Deep subprime borrowers looking to take out a subprime loan or credit card should pay close attention to the terms and conditions, as these financial products typically come with sky high interest rates and fees.

CNBC Select found that deep subprime borrowers with credit cards can incur interest charges that are more than double what top-tiered super-prime borrowers pay.

In January, Fortune reported that many of the more than 7 million Americans who are more than three months behind on their loan payments are subprime borrowers with poor credit, and they owe more than their car is worth.

An Experian analysis of auto loans in the first quarter of 2020 shows just how much more subprime and deep subprime borrowers are charged in interest on a new car loan than those in the higher credit score categories.

Here are the average interest rates for each category of borrower, according to Experian's first quarter data:

  • Super-prime (781-850 as defined by Experian): 3.65%
  • Prime (661-780): 4.68%
  • Nonprime (601-660): 7.65%
  • Subprime (501-600): 11.92%
  • Deep subprime (501-600): 14.39%

The interest rate is almost double between nonprime and subprime auto loans. And for those with deep subprime credit scores, they're charged an interest rate more than 3X that charged to prime borrowers.

How to improve your situation

If you have deep subprime credit, don't despair. There are steps you can take to repair your credit, albeit it's not an overnight fix.

Knowing your credit score is arguably the first step to improving it. Financial education, including understanding how your credit score is calculated and how interest rates can vary, can help you protect yourself from subprime loans and their steep costs. Really take a look at the interest rates being offered before you apply for new credit and understand any associated fees.

With deep subprime credit your approval odds aren't great, but there are credit cards that exist specifically for those with bad credit or no credit history at all — and they can help you build your credit back up. Just be sure to review the terms and conditions carefully as some subprime cards can charge high fees alongside high interest rates.

One of the best options is a secured credit card. These cards are for beginners and don't require a high credit score to qualify, but you will need to pay a deposit upfront (usually $200) that acts as your credit limit. Once you use this card for a while, you can be upgraded to an unsecured card and get your deposit back.

Consider the Capital One Platinum Secured Credit Card (see rates and fees) for a low deposit, the DCU Visa® Platinum Secured Credit Card for a low variable APR and the OpenSky® Secured Visa® Credit Card for no credit check when you apply.

Another option to build your credit is to use *Experian Boost™. This free feature helps people improve their credit scores by giving them credit for paying their monthly bills on time. Users can add their utility and phone bills, including internet, cable, gas, electric and water bills. And, just recently, Experian announced that consumers can now link their Netflix on-time payment history to their Experian Boost accounts.

Bottom line

While a deep subprime credit score can make it difficult for you to qualify for credit cards and personal loans, there are steps you can take to improve your credit. Consider signing up for a free credit monitoring service, such as CreditWise® from Capital One and Experian free credit monitoring, to get help keeping track of your credit as you work to improve it.

Information about the DCU Visa® Platinum Secured Credit Card has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.

*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.

Click here to view the Cardholder Agreement for the OpenSky® Secured Visa® Credit Card.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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