What is prime credit?

Definition and Examples of Prime Credit

How does prime credit work?

Benefits of prime credit

How to obtain prime credit?

Definition and Examples of Prime Credit

Prime credit describes borrowers with excellent credit. Prime borrowers are considered the most trustworthy due to their high credit scores and likelihood of repaying their debts. Since individuals with prime credit have high credit scores, they receive the best terms on credit cards, loans, and leases.

The specific ranges for credit scores can vary by lender. One lender may consider prime credit for consumers with credit scores above 730, while another may use 720 as a minimum.

How does prime credit work?

Prime credit largely depends on the credit score, but other financial factors such as income, debts, and assets also affect the rating. Generally, consumers with excellent credit fall into the prime category because they present a lower risk of defaulting on the loan.

Borrower ratings allow for easy determination of interest rates, repayment terms, maximum loan amounts, and financing eligibility.

Lenders prefer to provide financing to customers who fall into the prime category. Those who receive prime credit will have lower interest rates and longer repayment periods than borrowers in lower categories.

Lenders may have different levels and ranges for credit scores assigned to those categories, but prime always represents consumers with the highest credit scores. Since the minimum for prime credit varies from lender to lender, you may qualify for prime rates with one lender but fall into the second tier with another, even if they use the same credit score.

If your credit score is in the high 730s or above, you are likely in the prime category. However, lower 730s credit scores may fall into the second tier, depending on the lender.

Benefits of Prime Credit

Obtaining prime credit comes with many advantages when applying for financing.

More financing options: Being a qualified borrower opens the door to more lenders willing to work with you and the loan terms they will offer. You have the flexibility to shop around and choose the deal you prefer.

Saving money on interest when buying a vehicle: If you borrowed $28,000 to purchase a car with excellent credit on a 60-month loan and no down payment, you would pay $2,366.91 in interest over the life of the loan. In comparison, if your credit score were below 500, you would pay $11,064.54 in interest over 60 months. Qualifying for prime financing would allow you to save $8,697.63 in interest costs.

Monthly payments are more affordable: The monthly payment on a $28,000 auto loan for 60 months at a prime rate would be $506.12. In comparison, the monthly payment would be $651.08 if you borrowed with a credit score below 500, an increase of $144.96 per month. If your decision to purchase your vehicle depended on the amount of the loan’s monthly payment, falling below prime could result in choosing a less expensive car or a longer repayment period.

How to obtain prime credit?

Individuals with prime credit typically make all their payments on time, have low or no credit card balances, and are generally responsible in their credit usage. This excellent credit profile does not happen overnight. If you are not planning to apply for an auto loan in the next few months, you may be able to raise your credit score enough to move into a new tier using the following tips.

Pay

All monthly payments on time: Payment history is the primary factor in your credit score. To qualify for tier-one credit, try to pay all your bills on time, and if you have to pay late, make sure to pay within 29 days of the due date.

Keep credit card balances low: Reduce the amount of debt on your credit cards. The lower your credit card balances are relative to your credit limit, the higher your credit score will be. If you currently have high balances, focus on paying them down to below 50% to improve your credit score.

Keep old accounts open: Having a long credit history helps boost your credit score. While you may be tempted to close old accounts you don’t use, it’s better to keep them active. This increases your credit age, which makes up 15% of your score.

Source: https://www.thebalancemoney.com/what-is-tier-one-credit-5186092