"It offers every member a better option," Hanley said. "If somebody is going through some problems where they've had some credit bumps, in the old way of doing business without merit-based lending that would be a turn-down loan.

"In a merit-based situation, we are able to give them that money, albeit at a slightly higher rate, and use that opportunity to counsel them. 'If you increase your credit score by 20 points every four months, the next time you come to borrow your rate is going to be less.'"

As for the impact of declining credit scores in a tough economy, Hanley noted the merit-based approach at Citizens Community offers six rate levels. He has seen no change at the top and bottom level. But there has been a slight slide in the middle ranks.

There is a challenge when a member approaches a bank that is not offering risk-based lending. The rate at the bank may be lower, but it's a yes-or-no situation. Someone who phones the bank and asks "What's your auto rate?" may be told it's 5.95%. When they call Hanley, they learn it's 6.95% at the credit union. But the bank is only serving 10% of its customer base compared to the credit union serving 100% of its membership.

"People have become more sensitive to what a credit bureau is and what a credit score is," Hanley noted. "They don't understand in depth how a credit score is built, but they do understand that everybody has one."

Have there been changes in merit-based lending during the two decades CCCU has been involved?

"Absolutely. It's an evolutionary process that never stops changing. When you've been in as long as we have, and have our depth of experience, there aren't big changes. There are small changes. Some of those are based on the current economic environment. Some are based on what other programs are out there, including those from dealers and manufacturers," Hanley said.

OSU FCU in Corvallis, Ore., has offered risk-based pricing since 2001. It has worked well, according to Rhonda Heile-Brown, vice president for branch services. There are five tiers ranging from 3.99% to 18%.

"The economy has caused challenges," Heile-Brown said. "We do have members whose credit scores have declined for whatever reason. We try to work with them as closely as we possibly can to find something that fits their needs and is affordable for them, perhaps with a longer term."

As elsewhere, merit-based lending is pretty much the norm in the area. Heile-Brown believes one important factor is keeping an eye on the existing portfolio. OSU FCU receives regular reports indicating how many members fall into specific credit score ranges. You also need to make certain your underwriting criteria match the risk you will be taking.