I've blogged in the past about subprime lending, but what does it really mean? Is subprime a dirty word?
First, let me answer the last question. Subprime is not a dirty word. People who borrow money are classified as either "prime" or "subprime". Prime borrowers are ones who have a good credit history, pay all their credit on time and have used credit from time-to-time. The exact definition varies based on who does the defining. Subprime borrowers are ones who have a somewhat tarnished credit history.
Of course, foreclosure, legal judgements, reposessions, bankruptcies or charge-offs do massive damage to your credit history. Also late-payments hurt. Wikipedia says "two or more loan payments paid past 30 days due in the last 12 months, or one or more loan payments paid past 90 days due the last 36 months."
So two late payments or one very late payment means you are classified as "subprime".
So, if it's not a dirty word, what's the big deal? Well, depending on HOW subprime a person is, they may get worse terms on any credit. If you don't need credit, it's no big deal. But if you need/want credit, you may see higher fees, higher interest rates. The idea is that the lender needs these higher fees and rates to offset the higher risk. And of course, they wouldn't take this risk if they didn't think they could get a higher return.
But there are a large number of people who are "subprime" who aren't much "subprime". These people have a few late payments and maybe a few other problems with their credit. They may have trouble getting a loan, but it doesn't say anything about their value as a person.
If you want to read my previous posts click on "My take on sub-prime", "Citibank" or "Foreclosure relief"