What does 'Prime' mean

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.

RELATED TERMS
  1. Prime Borrower

    A prime borrower is considered likely to make loan payments on ...
  2. Five Cs Of Credit

    A method used by lenders to determine the credit worthiness of ...
  3. Prime Rate

    The interest rate that commercial banks charge their most credit-worthy ...
  4. Subprime Lender

    A type of lender that specializes in lending to borrowers with ...
  5. Borrowing Base

    The amount of money a lender will loan to a company based on ...
  6. Alt-A

    A classification of mortgages where the risk profile falls between ...
Related Articles
  1. Small Business

    Lending Clubs: Better Than Banks?

    If you need to borrow money and your credit is making it tough, this new option may be just what you're looking for.
  2. Fico vs. Experian vs. Equifax: Their Pros and Cons (FICO, EFX)

    FICO, Experian and Equifax all provide information about a borrower's credit history. However, important differences exist between the three companies.
  3. Investing

    Understanding Credit Risk

    Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt.
  4. Personal Finance

    Purchasing a Home with Bad Credit Is Possible: Here's How

    A bad credit report can become an obstacle, resulting in denials for credit or higher interest rates, but borrowers with low credit scores can still purchase a home.
  5. Personal Finance

    Can't Get A Bank Loan? Turn To Your Neighbor

    Peer-to-peer lending can be an inexpensive way to gain access to credit when banks are restricting lending -- but you need to understand the entire deal first before jumping in.
  6. Personal Finance

    Understanding Your FICO Score

    Lenders use the FICO score to assess a loan applicant’s credit risk.
  7. Personal Finance

    What Do Credit Score Ranges Mean?

    Take a closer look at what credit scores in each range mean for your financial future.
  8. Investing

    What Is The New 'FICO Score 9' And Its Benefits?

    A change in how some credit scores are calculated might soon make it easier for some homebuyers and homeowners to get a mortgage.
  9. Personal Finance

    Personal Loans: Consider These Alternative Lenders

    Looking for an alternative source of financing for a personal loan? Take a look at these companies.
  10. Personal Finance

    Meet The Company Behind Your FICO Score

    There are other credit scores that evaluate lending risk, but FICO is still the choice of most U.S. lenders.
RELATED FAQS
  1. What should ordinary borrowers know about the prime rate?

    Learn more about how prime rates are used in consumer lending and how consumers may obtain better interest rates at or near ... Read Answer >>
  2. What's the difference between the prime rate and the discount rate?

    Learn more about the prime rate and the discount rate and how the Federal Reserve uses these rates in the U.S. economy. Explore ... Read Answer >>
  3. What is the most important "C" in the Five Cs of Credit?

    Learn how the five C's of credit affect new credit application decisions, and understand how a lender analyzes each aspect ... Read Answer >>
  4. Why do high profiting sales mitigate credit risk?

    Learn more about credit risk in loaning to individuals and businesses. Understand how credit risk is determined and the impact ... Read Answer >>
  5. What is the difference between the Five Cs of Credit and credit rating?

    Learn the difference between the five C's of credit and credit rating and how they are used together by banks and finance ... Read Answer >>
  6. What's the difference between a credit rating and a credit score?

    Learn about the differences between credit ratings and credit scores, and review how these expressions of creditworthiness ... Read Answer >>
Trading Center