Credit Scores Are Slipping — And Credit Unions May Be Approaching a More Difficult Auto Lending Environment

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Recent consumer credit data is beginning to paint a picture that many credit union collections departments may already be quietly seeing firsthand: borrower stability appears to be weakening.

While headline delinquency numbers remain manageable in many portfolios, underlying borrower quality indicators are beginning to soften. National reports show U.S. credit scores declining while auto loan delinquency rates continue climbing toward historic highs — a combination that could create increasing pressure on credit union lending and collections operations over the next 12 to 18 months.

According to a recent report published by MSN, consumer auto-loan-related credit scores dropped sharply in a relatively short period, reflecting growing financial strain from inflation, elevated living costs, rising insurance premiums, resumed student loan obligations, and persistent high interest rates.

For credit unions, the concern extends well beyond underwriting.

The issue may increasingly become one of portfolio preservation.

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A Slow Shift — Not a Sudden Collapse

Unlike the rapid deterioration seen during the 2008 financial crisis, today’s environment appears more gradual and layered.

Borrowers are not necessarily failing all at once. Instead, many are slowly weakening financially:

• Credit scores drifting downward
• Payment extensions increasing
• Skip-payment requests becoming more common
• Negative equity worsening
• Vehicle affordability deteriorating
• Insurance cancellations rising
• Revolving debt balances climbing

For many credit unions, these are early-stage warning indicators that can emerge well before severe delinquency rates spike.

The challenge is that even modest score declines can significantly alter repayment behavior and recovery outcomes across a large portfolio.

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Credit Unions Face a Unique Balancing Act

Unlike many finance companies, credit unions traditionally operate with a member-focused philosophy. Over the last several years, many institutions expanded loan terms, increased loan-to-value tolerances, and relied heavily on deferments and modifications to help members navigate economic strain.

Those same strategies may now be increasing downstream risk exposure.

Many collections departments are attempting to balance:

• member retention,
• hardship accommodation,
• regulatory scrutiny,
• and portfolio performance

all at the same time.

Extending assistance too long can increase charge-off severity if collateral values deteriorate faster than balances amortize. Moving too aggressively, however, risks reputational damage and member dissatisfaction during a period where many households remain financially strained.

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Historical Trend: Credit Scores Falling While Delinquencies Rise

The broader trend becomes clearer when viewed historically.

The chart below illustrates the relationship between declining average U.S. FICO scores and rising auto loan delinquency rates over recent years.

Year	Avg. U.S. FICO Score	Auto Loan Delinquency Rate
2019	706	3.9%
2020	710	3.1%
2021	714	3.0%
2022	717	4.1%
2023	717	5.0%
2024	715	6.1%
2025	714	6.7%

What the Data Suggests

• Credit quality improved temporarily during pandemic stimulus years.
• As stimulus faded and inflationary pressure increased, delinquency rates began accelerating sharply.
• Credit scores are now beginning to reverse direction at the same time delinquency rates continue climbing.

For lenders and collectors, that combination can become problematic quickly.

Sources:

• Investopedia – Biggest Credit Score Drop Since the Financial Crisis
• Trading Economics – U.S. Car Loan Delinquency Rate
• Federal Reserve Consumer Delinquency Data

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Prime Borrowers Are Beginning to Show Stress

Perhaps more concerning for credit unions is that repayment pressure is no longer isolated to traditional subprime borrowers.

Reuters recently reported that even prime-credit consumers are beginning to miss payments at increasing rates.
Source: Reuters – Prime Borrowers Starting to Slip on Payments

That matters because many credit union portfolios have historically relied on the relative stability of prime and super-prime membership bases.

As higher-credit borrowers begin showing signs of stress, portfolio deterioration can spread much more broadly than many institutions anticipated.

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Vehicle Affordability Continues to Pressure Borrowers

At the same time, vehicle affordability remains historically strained.

Average:

• vehicle prices,
• monthly payments,
• insurance costs,
• and interest rates

remain substantially above pre-pandemic norms.

According to Experian and Reuters reporting:

• average monthly vehicle payments have approached or exceeded $750,
• average financed balances remain elevated,
• and longer loan terms continue masking affordability pressure.

Sources:

• Reuters – Car Affordability Affecting Auto Lending Market
• Experian Auto Finance Trends

For credit unions, that environment creates growing tension between maintaining loan growth and controlling future losses.

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Delayed Repossessions May Increase Future Loss Severity

Across the repossession industry, many agencies and forwarders have increasingly reported lenders delaying repo placement thresholds further into delinquency cycles compared to historical norms.

In many cases, this reflects credit unions attempting to provide members additional time and workout opportunities before recovery action occurs.

But delayed repossession placement can also create unintended consequences:

• worsening collateral condition,
• greater negative equity,
• increased locate difficulty,
• higher recovery costs,
• and larger auction deficiencies.

By the time some accounts are finally assigned for repossession, the collateral position may already be severely compromised.

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What Credit Union Collections Departments May Need to Watch Closely

Over the next 12 to 18 months, collections managers may increasingly focus on:

• early-stage delinquency migration,
• extension frequency trends,
• re-aging activity,
• insurance lapse rates,
• negative equity exposure,
• recovery timing strategies,
• and auction loss severity.

The emerging concern is not necessarily one catastrophic economic event.

Rather, it is the stacking effect of multiple financial pressures occurring simultaneously:

• declining borrower liquidity,
• higher monthly obligations,
• elevated interest costs,
• softening credit quality,
• and depreciating collateral values.

Individually, each factor may appear manageable.

Together, they may create a far more fragile lending environment for credit unions than headline delinquency numbers alone currently suggest.

Credit Scores Are Slipping — And Credit Unions May Be Approaching a More Difficult Auto Lending Environment – Credit Scores Are Slipping — And Credit Unions May Be Approaching a More Difficult Auto Lending Environment – Credit Scores Are Slipping — And Credit Unions May Be Approaching a More Difficult Auto Lending Environment

Credit Scores Are Slipping — And Credit Unions May Be Approaching a More Difficult Auto Lending Environment – Credit Union Collections – Credit Union Collectors – Lending – Auto Loan – Repossession – Repossess – Repossession