Access to credit not only enables people to consume beyond their current income, but also increasingly determines life chances and access to basic social services. This paper argues that there is a trade-off between private credit and the welfare state and proposes a causal model of social policy-making where policymakers incorporate the availability of credit in their considerations of how to distribute welfare resources. Drawing on time-series cross-sectional data from US States I first show that a decline in the share of denied mortgages is associated with lower health care and unemployment expenditures and a modest decline in unemployment insurance generosity. Secondly, I exploit exogenous variation in state-level mortgage interest rates induced by differential timing in bank branch deregulation to demonstrate that improved access to mortgage credit similarly decreases state-level health care and unemployment expenditures and unemployment insurance generosity. The findings of this paper provide causal evidence that easier access to credit lowers state-level public health and unemployment expenditures. These credit flow to families enabled policymakers to shift the burden of social policies from the domain of the publicly financed welfare state into the domain of privately-funded market-driven welfare state. The transition toward a credit-based welfare state has broad socioeconomic consequences. Credit can serve as an alternative form of or substitute for social redistribution and social insurance, but it cannot replace it because the distributional and stratifying implications are not the same as in the case of publicly provided social policies.