When lenders consider applications for mortgages, car loans or any form of credit, their first concern is to determine how likely it is they will get their money back. The FICO score is a number ranging from 300 to 850 (a perfect score) that summarizes the credit risk a potential borrower presents. The term "subprime" indicates a low score--low enough that there is a significant risk that the borrower won't be able to repay the debt.
Identification
There is no formal definition of a subprime FICO score. A FICO score is considered subprime if mainstream lenders won't extend credit because they consider their risk to be too great.
Dividing Lines
The majority of mainstream lenders consider a FICO score of less than 620 to be subprime or poor; 620 to 680 is fair; and a score over 680 is good.
Mortgage Lenders
Fannie Mae, Freddie Mac and other mortgage providers usually prefer a FICO score of 640 or higher, but will usually accept 620 with a good downpayment.
FHA/VA
The Federal Housing Authority and Veterans Administration use 580 as the standard for home loans, provided the borrower meets income requirements and has good credit behavior in the recent past.
Subprime Lenders
Some lenders specialize in providing "second chance" credit to people with subprime FICO scores. These subprime lenders charge high interest rates to offset the increased credit risk.
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