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What having nonprime credit means and how to improve your score

CNBC Select defines what it means to have nonprime credit and how to raise your score to prime.

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Consumers who classify as nonprime fall right in between subprime and prime territory. Their credit scores are higher than those of subprime borrowers, but lower than those of prime borrowers.

In the middle of being either prime or subprime, nonprime borrowers have the opportunity to either improve their credit or fall further behind. Their credit management behaviors are even more important since there is a big difference between the two ends of the spectrum.

Just points away from 661, nonprime borrowers all-too-often miss out on qualifying for the best credit cards and loans with favorable terms. Prime borrowers, on the other hand, have higher credit scores and more access to all types of credit because their credit histories show that they pose less of a risk of defaulting on their payments.

Below, CNBC Select defines the credit score of a nonprime borrower and two ways these types of consumers can make the jump to having prime credit.

The credit score of a nonprime borrower

On the typical credit score range of 300 to 850, nonprime borrowers are defined as having a credit score between 601 and 660, according to credit bureau Experian. Note that credit score ranges for borrower classifications vary across lenders and organizations, but, as you can see, 601 to 660 falls into the middle of the overall range of credit scores.

A credit score in the 600's is less than stellar, but it is high enough to qualify for some loans and credit cards.

The recently launched Petal® 1 "No Annual Fee" Visa® Credit Card, for example, is designed for those with non-prime credit, has no annual fee and doesn't require any deposits upfront (like most credit cards for low credit scores do). With responsible use, new cardholders can build credit while earning up to 2% to 10% cash back from select merchants.

Read more about the Petal® 1 "No Annual Fee" Visa® Credit Card here.

When it comes to qualifying for certain loans, nonprime borrowers may have to make larger upfront payments, pay more fees or agree to higher interest rates. For example, an Experian analysis of auto loans in the second quarter of 2020 shows that nonprime borrowers are charged more than double in interest on a new car loan than those with super-prime credit.

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

  • Super-prime (781-850 as defined by Experian): 3.24%
  • Prime (661-780): 4.21%
  • Nonprime (601-660): 7.14%
  • Subprime (501-600): 11.33%
  • Deep subprime (300-500): 13.97%

When compared to those with lower, deep subprime credit, nonprime borrowers were paying nearly twice as less interest.

2 steps to raise your score to be a prime borrower

Nonprime borrowers certainly have challenging credit scores, but with just a bit of work they can make the jump to having better, prime credit.

STEP 1: The most important factor in consumers' credit score calculations — making up 35% of their FICO Score — is their payment history. Given nonprime borrowers have a score landing them in the 600's, they likely have a history of late or missed payments on their credit profiles that sets them back.

To improve your situation, make a concerted effort to pay all your bills on time every month, even if it's just the minimum to start. Set calendar or phone reminders so that you prioritize when your bills are due. Automating your payments so that the money is taken out of your account at the same time each month can help if you tend to forget deadlines.

STEP 2: Once you get in the habit of making on-time minimum monthly payments, attempt to pay your balances off in full if you can afford it. Amounts owed, or how much of your available credit you use (also known as your credit utilization rate), counts for the next 30% of your FICO Score. The key to a low utilization rate is maintaining low credit card balances, leaving high credit limits unused.

Paying off your credit card balance every month is crucial because it also helps you avoid having to pay notoriously high interest that issuers charge whenever you carry a balance.

Petal 1 Visa Credit Card is issued by WebBank.

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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