Subprime borrowers are characterized by what kind of credit history?

Subprime borrowers are individuals who typically possess weakened credit histories. This classification generally indicates that these borrowers have had previous issues with managing credit, such as late payments, high credit utilization, bankruptcy, or other financial challenges that have negatively impacted their credit scores. As a result, lenders perceive them as higher-risk borrowers, which often results in higher interest rates and less favorable loan terms compared to prime borrowers who have excellent credit histories.

The context is essential for understanding subprime lending; these borrowers often seek loans that they may not qualify for with traditional lending standards due to their credit challenges. Therefore, recognizing that subprime borrowers are characterized by weakened credit histories is crucial for understanding how credit is assessed and how lending practices function regarding risk evaluation.