A prime credit score typically refers to a high credit score, usually above 720. It shows lenders that you have a history of responsibly managing credit and can qualify you for better loan terms and lower interest rates.
Few numbers are as important as your credit scores. Lenders use them to determine if you qualify for auto loans, home loans, credit cards and other products. In some states, insurance companies use credit scores to calculate your premiums. You may even have to undergo a credit check to qualify for some jobs.
Whether you just got your first credit card or have more than a decade of experience managing credit, it’s important to understand the score ranges and how they’re used. Keep reading to learn more about prime credit scores in particular.
A prime credit score is any score that falls into the “prime” category, and according to the Consumer Financial Protection Bureau, prime scores range from 660 to 719. Some lenders may have slightly different ideas of what is classified as a prime score. Although a prime score isn’t the highest credit score you can have—credit scores generally range from 300 to 850—it’s high enough to help you qualify for many loans and credit cards.
Prime is just one of the five categories used to classify consumer credit scores in the context of lending. The others are deep subprime, subprime, near-prime, and super-prime. Here’s what they mean:
Note that these score ranges are slightly different from the official FICO® score ranges:
FICO scoring models use the following factors to calculate your scores.
One of the best ways to boost your score is to make on-time payments, as payment history accounts for a whopping 35% of your FICO scores. If you borrow money, the lender expects to be repaid as agreed. A history of on-time payments shows that you follow through on your financial commitments.
Another major factor, accounting for 30% of your credit score, is the amount of available credit you are using on a regular basis. To maintain a prime credit score or super-prime credit score, avoid using a high percentage of your available credit. Maxing out your credit cards affects your utilization rate, which is a comparison of how much credit you have available versus how much you’re using.
For example, if you have balances totaling $5,000 against credit limits totaling $10,000, you have a 50% utilization rate. Lenders typically like to see utilization rates below 30%, so paying down debt and requesting credit limit increases can help you optimize your scores.
FICO’s models also consider your average age of accounts, along with the age of your oldest and newest accounts, when determining your scores. You don’t need a long history to achieve a high credit score, but it can help. This determines 15% of your credit score.
The term credit mix refers to how many types of credit accounts you have. Some people have one or two credit cards, while others have a full portfolio of credit cards, personal loans, and auto loans. Credit mix doesn’t make up a huge percentage of your score (10%), but it’s one of the factors used to assess your creditworthiness.
Every time you apply for a loan or a credit card, the lender checks your credit report. This is known as a “hard inquiry” on your report. There’s nothing wrong with an inquiry or two, but applying for multiple lines of credit in a short amount of time is a red flag for lenders. If a lender sees four or five inquiries in a matter of weeks, they may wonder if you’re running out of money and relying on credit to pay your bills. New credit accounts for 10% of your FICO credit score.
Having a prime credit score opens many doors for borrowers. For example, you’re likely to qualify for the best interest rates, reducing the total cost of borrowing money. Lenders may also be willing to offer more favorable loan terms, such as more time to pay or reduced fees.
Good credit also gives you more freedom. If your car breaks down, a prime credit score makes it easier to qualify for a vehicle loan. Without a good score, you might have to rely on an unsafe vehicle or take out a loan with an extremely high interest rate. Prime credit scores may even help you secure lower rates on your auto insurance, homeowners insurance or renters insurance coverage.
Once you have a prime credit score, it’s important to maintain it. You can maintain good scores by making on-time payments, keeping your credit utilization rate as low as possible and applying for credit only when you truly need it. Over time, these good financial habits may help you jump from a lower credit to higher credit.
Get your free credit score from Credit.com today to see where your credit currently lies and determine what you can do to maintain or improve it.