The saddest stories of sub-prime abuse are of individuals who are “prime” but don’t know it. Typically, they’re in vulnerable groups: immigrants, minorities, people who don’t have a familiarity with credit and their own status. The lender usually opens the conversation with some reference like “Considering your credit history . . . “ or “This is a great rate for you.”
When you hear words like this, consider it a warning. If you have your credit report and know your score, you can ask the hard questions back. Such as, “What is your criteria for the advertised rate?” Know your score and you’ll know “the score,” when you apply for a loan. If the offer is sub-prime and your credit report and score indicate that you deserve prime (according to either the lender’s criteria or your own shopping around), I suggest you reassess your lender.
Some businesses make a lot of money putting people into more expensive loans than they qualify for. Called a premium, overcharging you can mean big bonuses for mortgage or car lenders. But this won’t happen to you if you have the facts and know where you stand.
The Federal Home Loan Mortgage Corporation (known as Freddie Mac) estimates that as many as one-third of borrowers who end up in subprime loans could have received better loan terms, but due to lack of competition, ignorance of their own creditworthiness, failure to shop around, and so on, they did not. Some experts think that figure is as high as 50 percent.