It’s become a sad fact of life in the United States that as many as half of the marriages that take place in 2019 will end in divorce. And, while a marriage may dissolve for a variety of reasons, children must be supported. Often, divorce decrees establish these payments. Fortunately, around 44 percent of those who should be receiving child support payments are in full. Others, however, become delinquent.
Right now, no federal law restricts the reporting of child support obligors to credit bureaus, whether current or behind in their payments. Instead, the Office of Child Support Enforcement (OCSE) encourages state agencies to report all noncustodial parents with legitimate support obligations.
Datalinx is here to help you determine if potential creditors are struggling to make their child support payments in order to maintain their rating with the spectrum of credit reporting agencies. We can mine the data across state lines in order to determine if an individual could pose a potential credit risk to you and your industry — whether it’s as part of an automobile loan or for a yearly lease on an apartment or condominium. Why not let us tackle this for you?
Did you know?
Delinquent child support payments can result in a hit to your credit rating. These missed payments can appear as a collection item on a credit report and result in a decrease of 100 or more points on a FICO score of 780 or higher. These delinquencies can also work to further suppress and already low score.
A credit score may be similarly affected when the unpaid child support payments result in a court judgement.
More than one million individuals have their delinquent child support reported to credit bureaus each year. But, when reported as a trade line on a credit report, delinquent payments for child support have a neutral affect. A trade line is the most common type of entry on credit reports. Each trade line represents a credit account that has been reported to a trade bureau.
Reporting inconsistencies
State to state, agencies report child support information inconsistently. Because of this, FICO models often bypass this information. Despite this, however, lenders can and do factor in child support trade lines when evaluating credit applications. This is often regardless of credit scores. Lender may even require the applicant to pay delinquent payments in full before approving an application.
Title IV, Part D, of the Social Security Act requires “states to report periodically to consumer reporting agencies … the name of any noncustodial parent who is delinquent of child support and the amount of overdue support owed by such parent.”
OCSE Deputy Director Allie Page Matthews wrote a letter to the states on the matter. “Some state agency officials, according to a recent GAO draft report on credit bureau reporting,” he said, “erroneously believe the Social Security Act restricts who can be reported to credit bureaus.” Officials in several states, the report says, believe the law allows them to report only parents with arrears.
Gaining clarity
While federal law sets forth the minimum requirements, enforcement agencies are free to provide information to credit bureaus. This includes information on any noncustodial parent with a legitimate child support obligation, regardless of the status of the support.
Vermont is doing just that — reporting virtually all noncustodial parents, including those current in their payments. Timely reporting enhances the effectiveness of credit bureaus as information sources for locating noncustodial parents whose whereabouts may be unknown.
More often than not, requirements force states to notify individuals before reporting overdue child support information to credit bureaus. Finally, many states require agencies to report only overdue payments that exceed $1,000.
When possible, you should encourage potential clients to pay child support payments in full. This is especially true when those clients are seeking credit. It eliminates the potential for a negative credit report. When this isn’t possible, contact your state agency to work out a system that’s beneficial to all parties.
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