Here’s a great article on delinquent child support and how it hurts one’s credit score written by Jeff Gitlen. Jeff Gitlen is a graduate of the University of Delaware. He writes about a wide range of financial topics including student loans, credit cards, small business financing, and more. His work has been featured on a number of sites including Bloomberg, CNBC, Forbes, Market Watch, and more. I like this article because Jeff touches on every possible scenario with respect to how child support impacts one’s credit and he also discusses what to watch out for.
Does Delinquent Child Support Affect Your Credit Score?
“Being delinquent on your child support payments likely won’t affect your credit score – at least right away. If your balance is sent to collections, that may be reported to the credit bureaus in which case your score would take a hit.
Most people know someone who is paying child support to an ex-spouse or significant other for the care of their child. Many of those who are supposed to be paying, however, aren’t. In a 2015 report, NPR found that unpaid child support topped $113 billion.
The reasons why so many non-custodial parents are not paying their child support obligations are varied; some miss a payment here and there due to general forgetfulness or lack of funds available.
Regardless of the reason behind the delinquency, however, it is important to know how missed child support payments can affect your credit score.
How Child Support Works
Each state has its own laws on how child support is calculated and collected. In most cases, however, the non-custodial parent pays the parent with whom the child lives most of the time. The amount paid per month is usually decided by the courts during the custody proceedings and is derived from a state-mandated formula that considers both parents’ income. In some cases, if the parents can come to an amicable agreement, the court will allow that agreement to stand as-is.
Once the amount is decided, it’s up to the paying parent to ensure that the money gets where it needs to go. That may mean making a deposit into a bank account in the child’s name, writing a check to the other parent, or some other arrangement. If the payments don’t get made, however, the state can start garnishing the delinquent parent’s wages.
To dodge their obligation, some parents go as far as working under the table or not working at all in the hopes that they can avoid having their income garnished. What many parents don’t realize, however, is that federal law mandates that any delinquent child support of $1,000 or more must be reported to the credit bureaus—and in some states like Minnesota, you can be reported to the bureaus if you are delinquent by any amount at all.
Child Support Collections
If the balance continues to go unpaid and the state cannot find or garnish wages, tax refunds, or other funds, it will send the delinquent bill to a collection or enforcement agency. The parent may receive calls, emails, or certified letters reminding them to pay their balance and explaining the potential consequences of not doing so. The state will be actively looking for the parent, as well as seeking assets or employment.
The enforcement agency may choose to report that the balance is now in collections, which could have a significant negative impact on your credit score.
After a varying amount of time, if you still have not paid, even in the face of enforcement or collection efforts, the state or enforcement agency may take you to court over the balance. The judge, if it is determined that you do in fact owe the balance and have not paid it, will grant a judgment against you. This will be reported to the credit bureau, which will show the judgment on your report—and what it’s for.
Once a judgment has been filed, a side effect of being reported to the credit bureau for non-payment is that the credit reporting agency can also report your last known address to the state. In addition, a lien can be placed on your assets: your home, car, and other possessions can be taken to pay your debt.
Delinquent Child Support Payments and Your Credit Score
Even though delinquent child support won’t immediately affect your score, you will find many doors closed to you until you take care of the unpaid balance. Creditors aren’t the only ones who look at credit history; employers often consider a credit check to be a standard part of the employment process, and most landlords look at credit as well.
Regardless of how high your credit score is—or what the situation or reasoning is behind your failure to pay your child support obligation—you could find yourself unable to buy a home, rent an apartment, or even get certain types of jobs.
For many lenders, delinquent child support is an automatic no-go. “As an SBA lender, our customers are required to have no delinquent child support obligations, and they can’t use loan proceeds to get current either,” says Tiffany Bernethy, a senior commercial loan officer with a large national lender. “It’s generally lender preference, but most lenders do require them to be current.”
Owing back child support doesn’t have to ruin your life. Most states have programs in place to help parents who are having trouble and want to get their balances taken care of. The best cure for delinquent child support affecting your ability to get credit, however, is prevention. Staying current on payments will not only save your credit, but it could also save your ability to get a better job or home down the road.”