Most of the current discussion around private credit risk is directionally right.
But it’s focused in the wrong place.
Capital is reacting to perceived risk in:
– software credit
– broadly defined “consumer” exposure
While overlooking a segment where:
– borrower quality is stronger
– demand is structurally anchored
– and the real constraint isn’t credit… it’s conversion
The result is not just inefficiency. It’s mispricing.
This note lays out:
• where that mispricing exists
• why it persists
• and how value is shifting away from balance sheets toward transaction infrastructure
Including one of the more underappreciated dynamics in the market today:
→ alpha being created not through underwriting… but through capturing transactions the system currently fails to close
Credit Score Primer
Most people think of credit scores as a number.
Lenders know it’s a signal: but often the wrong one, or at least an incomplete one.
What’s more interesting is how that signal is shifting underneath us… and what it means for capital allocation, pricing, and risk selection going forward.
Financial Intelligence Series
Credit Score Primer
The Relationship Between Income and Credit
National Average FICO Score (2024)
715
The U.S. average has risen 26 points since 2010 and has not declined on an annual basis for eleven consecutive years — reflecting broad improvement in consumer credit behavior despite rising debt levels.
Total U.S. Consumer Debt (Q4 2025)
$17.7T
Credit card balances alone reached a record $1.21 trillion. Yet delinquency rates remain below pre-2008 levels — illustrating the bifurcated economy where high earners manage debt well while lower-income households face increasing strain.
Income & Credit Correlation
Median FICO Score by Household Income Tier
Income is not a direct input to any FICO or VantageScore model. However, the Federal Reserve Bank of New York found a strong indirect correlation — higher incomes enable lower credit utilization ratios, more consistent payment histories, and access to higher credit limits, all of which significantly influence scores.
Low Income
658
< 50% of area median income
Fair rangeModerate Income
692
50% – 79% of area median
Fair rangeMiddle Income
735
80% – 120% of area median
Very GoodHigh Income
774
> 120% of area median
Very GoodMedian score by income tier
FRBNY Consumer Credit Panel / Equifax · Income tiers per FFIEC methodology
FICO score tiers
Score ranges and approximate U.S. consumer share
| Tier | Range | U.S. share |
|---|---|---|
| Exceptional | 800–850 | 24.0% |
| Very Good | 740–799 | ~17% |
| Good | 670–739 | ~30% |
| Fair | 580–669 | ~13% |
| Poor | 300–579 | 16.3% |
71.2% of Americans hold a Good score or higher. Approximately 26M adults are "credit invisible" — no score at all.
Credit score distribution by income tract — Eighth Federal Reserve District (2025 Q1)
Percentages of adults by subprime / prime / super-prime classification across census tract income levels. Source: St. Louis Fed / FRBNY Consumer Credit Panel / Equifax Q1 2025.
Subprime <580
Subprime 580–659
Prime 660–719
Super-prime 720+
Analysis
Key Findings
Credit utilization
Higher incomes enable lower utilization ratios — the second-most-important FICO factor (30% of score). Consumers with Very Good scores average 12.4% utilization vs. 32.6% for those in the Good range. Average utilization nationally surged to 36.1% in early 2026, up from 21.3% in 2024. — Experian; WalletHub / TransUnion
Payment consistency
Payment history represents 35% of FICO score — the single largest factor. Income volatility in lower-income households materially increases the risk of missed payments. A median score of 658 for low-income borrowers puts many below the 720 threshold lenders typically require for favorable terms. — Federal Reserve Board; FRBNY (2020)
Credit limit constraints
Lower-income applicants typically receive smaller credit limits, making it easier to reach high utilization even with modest balances — creating a structural disadvantage that perpetuates lower scores and limits access to affordable credit products. — LendingTree; Consumer Federation of America
Correlation is moderate, not deterministic
The Federal Reserve Board found household income is only moderately correlated with credit scores. Cross-sectional income variations account for a modest fraction of score variation — many lower-income consumers maintain good or excellent credit through disciplined payment behavior. — Beer, Ionescu & Li, Fed FEDS Notes (2018)
Geographic stratification
Average scores range from 725 in Minnesota to 677 in Mississippi — a 48-point national spread. In low-income census tracts, over 53% of adults carry subprime scores; in upper-income tracts, 67.5% hold super-prime scores of 720+. — FICO; St. Louis Fed Q1 2025
Credit invisibility
Approximately 26 million U.S. adults (roughly 10%) have no credit record whatsoever — they are "credit invisible." An additional 19 million have records too thin or outdated to generate a score, disproportionately concentrated in lower-income and minority communities. — Consumer Financial Protection Bureau
Sources
Federal Reserve Bank of New York, The State of Low Income America: Credit Access & Debt Payment (2020, 2022) · Board of Governors of the Federal Reserve System — Beer, Ionescu & Li, "Are Income and Credit Scores Highly Correlated?" FEDS Notes (August 2018) · Federal Reserve Bank of St. Louis / FRBNY Consumer Credit Panel / Equifax, Access to Traditional Credit in the U.S. and the Fed's Eighth District (Q1 2025) · Experian, What Is the Average Credit Score in the U.S.? (2024–2025) · FICO Credit Insights Report (2025–2026) · Consumer Financial Protection Bureau (CFPB) — Credit Invisibility Study · LendingTree Credit Score Statistics (2024) · WalletHub / TransUnion Average Credit Score Statistics (2026)
Registered Representative of and Securities Products offered through BA Securities, LLC. Member FINRA SIPC. LEHNS Capital Advisory, LLC and BA Securities, LLC are separate, unaffiliated entities. The information contained herein is for informational purposes only and does not constitute investment advice or an offer to buy or sell any security. Past performance is not indicative of future results.
Oil Shock Amnesia- Mispricing Duration Risk in Energy-Driven Credit Cycles
Every time oil spikes, the market reacts the same way.
Prices move. Headlines follow. Models update.
And then, a few weeks later, everyone moves on.
What gets missed is the variable that actually matters for credit:
not how high oil goes - but how long it stays there.
Consumers don’t default the month gas prices rise.
They default 6–12 months later. After savings are depleted, credit cards are maxed, and income compression compounds.
We just published a short note on what this means for subprime auto and specialty finance.
The takeaway is uncomfortable but clear:
the next credit event in this sector won’t begin with unemployment, it will begin with gasoline.
The Refinery Gap Why This Energy Shock Will Hit Subprime Auto Faster Than Expected
Two numbers are running the economy right now. Investors are looking at one. Consumers are paying the other.
They are not the same number.
The market is about to learn why that matters. This is not a credit problem. It’s a capital problem.
Energy shocks like this don’t just increase losses, they compress the timeline.
Delinquencies show up faster. Funding tightens sooner.
And by the time ABS spreads move, the outcome has already been determined.
Infrastructure vs. Exposure The New Fault Line in Subprime Auto Finance
Two auto lenders.
Same dealers. Same borrowers. Same credit profiles.
One is scaling. The other is tightening originations. The difference isn’t credit performance. It’s capital.
What’s happening in subprime auto right now isn’t a gradual deterioration, it’s a structural separation between platforms that control their access to capital and those that depend on it.
That distinction is starting to show up in funding costs, growth rates, and ultimately, outcomes.
By the time it’s obvious in the data, it’s already too late.
SUBPRIME AUTO TERM ABS SECURITIZATION OVERVIEW 1Q 2024
Subprime auto securitization in 1Q 2024 by the numbers …
$57 BILLION.
Volume of new issue auto securitization in 1Q 2024.
Issuers are not taking their foot off the gas as the first quarter demonstrated; instead, they’re accelerating rapidly, setting a pace to demolish the industry’s $143 billion record issuance in 2023.
23 PERCENT.
Proportion of issuance that was subprime.
Investors continue to demonstrate voracious appetite for debt back by subprime auto obligors.
$556 MILLION.
Average size of a subprime auto term transaction priced in 1Q 2024.
With 5 transactions containing $1 billion or more in collateral, big deals are common, with three issuers coming to market more than once in the first quarter.
Learn more in the attached “Subprime Auto Term Securitization Overview 1Q 2024”
Download the Overview today to learn more.
TECH CONTROLS “ON-RAMP” TO PERSONAL LOAN APPS
Lenders that provide financing to sub-prime borrowers should understand how tech firms can grant or limit access to applications lenders rely on to communicate with their end customer.
Download this version of “Insights” to learn more.
AGGRESSIVE FEDERAL RESERVE INTEREST RATE HIKES
The Fed raised interest rates in May by 0.25%, its eleventh consecutive increase, but signaled that it might pause as it awaits further signs as to the direction that the economy might take.
Download this issue of “Insights” to learn more
