The news: The average VantageScore credit score dropped one point since last month, meaning the average customer’s creditworthiness is declining. And there are other signs of credit stress that should be alarming to banks.

The details: VantageScore’s recent study shows a nationwide shift in creditworthiness across a broad spectrum of consumers. 

• Late-stage credit delinquencies are increasing significantly YoY across all credit tiers. The superprime segment saw a 109% rise in delinquencies over 90 days late, and the prime segment saw 47%.
• Mortgage and auto loan delinquencies are rising. That’s despite balance increases and decreases in new loan originations.
• The number of consumers in the subprime credit tier is growing, while the prime tier is shrinking. This suggests more consumers are facing repayment challenges.

Our take: With the average credit score dropping and delinquencies rising across all tiers—including among historically reliable superprime borrowers—financial institutions (FIs) are facing a higher-risk environment. This requires a proactive approach to risk management. FIs should tighten their underwriting standards—particularly for mortgages and auto loans, which are showing the largest increases in late payments.

In addition, FIs must proactively engage with customers to help prevent delinquencies from turning into defaults. By using data to identify at-risk borrowers and reinforce customer loyalty, FIs can reach out with support and resources like loan modifications or personalized financial guidance.