'Gotta be connected to medical debt': The surprising reason credit scores are lower in the South

The United States’ credit scoring system is something that residents of some European countries have a hard time comprehending. Credit cards are king in the U.S., yet in parts of the European Union (EU), debit cards are more popular. And European banks and lenders don’t necessarily regard credit card use as a sign of one’s financial health.

Regardless, the credit scoring companies Equifax, Trans Union and Experian have enormous influence in the U.S., where one’s credit score can mean the difference between qualifying for a mortgage and not qualifying for a mortgage. According to reporting from the Washington Post’s Andrew Van Dam, the South is the U.S. region that tends to have the country’s lowest credit scores. And the reporter lays out some reasons for that in an article published on February 21.

Van Dam notes that according to an economic paper published by the Social Science Research Network (SSRN) in December 2022, low credit scores are a problem all over the U.S. but are especially problematic in the South.

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"The region’s poor credit means southerners are paying more to borrow money, assuming they can qualify for loans at all," Van Dam explains. "That sets them back in everything from car and home purchases to credit card rewards. Yes, even credit card rewards."

The Post reporter observes that low credit scores in the U.S. are more of a regional phenomenon than one having to do with race.

"When we ran the numbers," Van Dam reports, "the Blackest parts of the South had roughly the same credit scores as the least-Black areas. And their scores were far lower than places with similar Black populations outside the South. So, while race may play a role, it’s probably not the defining factor."

According to Urban Institute economist Breno Braga, that factor is medical debt.

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Braga told the Post, "The reason why credit scores are so low in the South has gotta be connected to medical debt, because that’s the most common type of unpaid bill that people have."

Van Dam reports that 92 of the 100 U.S. counties with “the highest share of adults struggling to pay their medical debt” are in the South.

"The other eight are in neighboring Oklahoma and Missouri, according to credit data from the Urban Institute," Van Dam observes. "On the other side, 82 of the 100 counties with the least pervasive medical-debt problems are in the Midwest, with 45 in Minnesota alone. And sure enough, when you look at areas across the nation where adults are struggling to pay down medical debt, they have similar credit scores."

The southern states have often been called "the Stroke Belt" because of their poor health outcomes. And Van Dam points out that data from the Centers for Medicare and Medicaid Services shows that southerners are "substantially more likely to suffer from four or more chronic conditions."

Moreover, southern states with Republican governors are less likely to accept Medicaid expansion under the Affordable Care Act of 2010, also known as Obamacare.

Van Dam reports, "Poor health tends to go hand in hand with people having overdue medical debt and poor credit scores…. Of the 11 states that have yet to expand Medicaid, eight sit in the South, according to KFF, a San Francisco health-policy nonprofit. Southerners were more likely to be behind on medical debt even before the ACA, but the reluctance among the region’s mostly Republican governors to participate in the Medicaid expansion has increased the gaps between the South and the rest of the country."

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Read the Washington Post’s full report at this link.