By James N. Giordano
In a year of racial reckoning on many fronts, we’re also seeing a greater focus on racial health disparities — why people of color have lower life expectancies and are sicker as a group than the white population. Some might be surprised that an over-reliance on credit scores may be a key contributing factor.
Much has been studied and written about the varied causes of health disparities for Black and Hispanic populations, including less access to care and implicit bias on the part of healthcare providers. But at a time when people are having to reach into their own pockets to pay for big deductibles, high co-pays, and medical expenses not covered by insurance, the inability to access medical credit is a major aggravating factor, especially for this population.
Most medical credit cards and other medical financing solutions rely on credit scores as the primary – sometimes the only – factor in deciding whether to extend someone’s credit. So patients with credit scores below 640 are usually out of luck if they can’t afford to pay out of pocket for medical expenses.
About 45 million American adults fit this definition, according to the Consumer Financial Protection Bureau. Around 26 million of them have no credit record at all. Fifty three million adults lack traditional FICO scores and another 19 million have some kind of credit record, but their information is either incomplete or out of date, which means they don’t have a score. That adds up to almost 1 in 5 of all American adults left with few good options.
That disproportionately affects people of color. A 2021 survey of 5,000 adults by Credit Sesame found that 54% of Black Americans and 41% of Hispanic Americans report credit scores below 640 – that’s 10% below the national average – or they have no credit score at all, making them “credit invisible.” As a consequence, making large purchases like buying a car or a home and affording medical expenses is nearly impossible.
As someone who spent most of my career in finance, I’ve become convinced that moving away from an over-reliance on credit scores and looking at patients’ bigger financial picture will help to close the medical access gap. The “old way” of simply using credit scores to evaluate someone’s ability to pay is archaic and it disfavors younger people, Blacks and Hispanics, and anyone without favorable credit scores. Credit scores are limiting and simply don’t provide the full picture. And finally big lenders are realizing that credit scores aren’t a reliable way to measure lending decisions. In fact, according to a recent survey, 48% of lenders are less confident making consumer decisions based on traditional credit scores and reports.
Fortunately, there are better ways to evaluate people’s propensity to pay, if healthcare providers are willing to think outside the box. We work with medical providers to successfully extend healthcare financing to people with credit scores as low as 400 (and, in some cases, people who are credit invisible). I say successfully because more than 99% of the time, the patients we’ve worked with have paid back their debts within 12 months.
Being credit challenged or credit invisible shouldn’t mean that someone can’t participate in the credit economy like anyone else, and it certainly shouldn’t deny them access to healthcare.
Poor credit might mean limited prior opportunity to demonstrate financial reliability or even previous mistakes. It’s time for the medical establishment to look past this and see whether patients are financially stable, make payments regularly, and have steady income. Their business is no less valuable and shouldn’t be overlooked.
Looking at the patient’s propensity to pay based on a variety of factors, rather than just their credit score, can bring healthcare within reach of many disenfranchised people. We have a moral imperative to do that.
James N. Giordano is the CEO of Care Cap Plus.