What is 'Prime'
Prime is a classification of borrowers, rates or holdings in the lending market that are considered to be of high quality. This classification is placed on those borrowers that are deemed to be the most credit-worthy and the prime rate is the rate that a lender will lend to its high quality borrowers.
BREAKING DOWN 'Prime'
Lenders use a credit scoring system to determine which loans a borrower may qualify. A major variable in this credit scoring system is a borrower's FICO score (which may range from 300 to 850). In general a borrower with a FICO score greater than 620 is considered to be eligible for a prime loan; however, other variables, such as past payment history, bankruptcy, foreclosure and the loan-to-value ratio are also considered.
Since a lender's incentives are not always aligned with a borrower's incentives, it is important for consumers to shop for the best loan at the best rate.