Data Insights: Improving Health through Credit Access

Data Insights are deep-dives into City Health Dashboard data, providing new perspectives on a metric, region, population or issue. For more Insights, see our Research and Reports page.

By: Becky Ofrane & Yuruo Li

Key Takeaway: Credit insecurity, a key element of financial insecurity, is a common threat to health and economic stability. Identifying cities—and neighborhoods within cities—with high credit insecurity scores can inform more targeted policy and resource decisions.

Decades of public health research have shown that poverty and financial security are closely linked to the health and well-being outcomes of individuals and populations. New data and analysis from the Federal Reserve Bank of New York, Equifax, and NYU Langone Health’s City Health Dashboard offer insights into an important measure of financial insecurity, the Credit Insecurity Index, which can track credit access by neighborhood. These new data identify the proportion of residents who are credit constrained, an important marker of a community’s financial health that can point toward actionable solutions for populations in greatest need. Analysis of these new credit insecurity data across the United States reveals how much communities’ credit access may differ. Limited credit access can make it harder to build both individual and community wealth. People with credit insecurity face greater obstacles to buying a home and investing in their community, as well as saving enough to start a business, cover unexpected medical expenses, support children in college, or pass along wealth to the next generation. Community measures of credit insecurity may predict a community’s potential resiliency in the face of a natural disaster like climate change or a global pandemic. In this data insight brief, we describe some of these patterns, identify populations in need of innovative financial solutions, and make the case for local action to improve community-level credit insecurity.

Credit Insecurity Index components. Federal Reserve Bank of NY.

First, what exactly do we mean by credit insecurity? The measure is an index with four components. It represents the proportion of local residents who have limited access to credit, either because they have no credit history or have had negative credit outcomes. Individuals with no credit history do not have a credit score and typically are not connected to mainstream credit institutions, such as banks or credit unions. Individuals with negative credit outcomes are those with low credit scores, or without revolving credit (such as a credit card), or with most of their available credit already in use. The Credit Insecurity Index, which is a score ranging from 0 to 100, takes both these categories of people into account to provide a measure of credit access in the community as a whole. Among U.S. cities with populations 50,000 and above, the average credit insecurity index score in 2020 was 20.5. Across these cities, Credit Insecurity Index values range from 4.2 to 56.3, with neighborhood values ranging even more, from 0.9 to 92. Higher Credit Insecurity Index values mean that a community is more credit constrained, so a lower score is more desirable.

A deeper look at credit insecurity data by City Types (see below), as well as by high- and low-scoring cities, confirms that certain groups have less access to credit. These include people historically marginalized from institutional lending and hindered from building wealth—primarily Black Americans—as well as groups in transient positions like college students. Refugee and immigrant groups, with limited connectivity to financial institutions and credit, can fit into both these categories.

Most cities listed for their low credit insecurity scores are small, high-tech, suburban clusters outside Seattle and Silicon Valley, reflecting high levels of concentrated individual and community wealth. On the other hand, cities listed for their high credit insecurity are more economically and industrially diverse. Some, like Harrisonburg, Va., are notable for large immigrant and refugee populations. Others, like New Brunswick, N.J. and Hartford, Conn., house significant college-age populations. According to the City Health Dashboard’s City Types categories, Small Industrial-Legacy Cities (Camden, Flint, Gary, Trenton, and Youngstown are all of this type) and College Cities have the highest average credit insecurity scores. This makes sense, as, according to the NY Federal Reserve, credit insecurity scores tend to align with other markers of economic well-being and distress, like poverty, unemployment, and educational attainment.

Why are some populations impacted so significantly? College students are primarily young adults and therefore often lack a credit history or can quickly develop poor credit ratings due to predatory college loan and credit card programs. Immigrants and refugees face steep barriers to establishing good credit and financial security when new to the United States. A report from the Chicago Federal Reserve Bank describes the importance of this issue: “The success of today’s immigrants—who come to the U.S. largely seeking to improve their own prospects for prosperity—depends on their access to mainstream financial institutions that can help them save money, buy homes, access credit, start businesses, and otherwise build wealth.” Similarly, refugees coming to the United States have complex financial needs and barriers, as recently explored in the International Rescue Committee’s report Financial Capability for New Americans. For example, financial coaching for new Americans is a successful solution when implemented well, but evidence suggests that women are significantly less likely to access this coaching, due to cultural norms, family obligations, and gender pay inequities.

African Americans have perhaps been most significantly impacted over generations by discriminatory economic practices like redlining and exclusions from home-buying and college tuition that should have been afforded by the post-WWII GI Bill. These impacts are most evident in often-disinvested Black communities where poverty has remained high, and opportunity low, despite rising educational levels. To this day, predatory payday lending services and similar programs are disproportionately located in majority Black and Latino neighborhoods.

Improving local access to credit.  A high score on the Credit Insecurity Index should signal a call to local action.  Community leaders have options that can improve credit security and access, including enacting payday loan regulations, living wage laws, community financial coaching for new Americans, promoting Community Development Financial Institutions (CDFIs), and more. Additional resources are available in the Take Action section of the City Health Dashboard. By identifying credit-insecure populations and linking them to resources to improve their financial standing and prospects, cities have an opportunity to improve not only the economic fortunes but also the health outcomes and overall well-being of their residents.