CrisisOfCredit.com has an excellent video explaining how we got into this credit crisis. But one thing about the video seems a little overdone.
They include drawings of what a prime vs sub-prime borrower looks like.
That seems a little ridiculous. The number of kids, weight, and smoking habits of borrowers likely has little to do with their financial situation.
As I understand the term, sub-prime refers to people with credit scores under 620. That can be just about anyone who’s fallen behind on credit cards or other types of financing.
In a rising market with high employment, even that group skated along just fine because they could always refinance based on the increased equity of their homes, or continue to pay their mortgage while letting other bills fall behind. But things hit the fan when homes stopped increasing at the rates they were. Put that together with layoffs and it’s pretty easy to see why both images above could represent the credit crisis.