Just 44% of custodial parents receive the full amount of child support they are entitled to, according to the US Census Bureau. Some 30% don’t receive payment at all. The parents behind on making those support payments might want to take a look at their credit. Missing child support payments can send a score down — and fast. Here’s a look at the role child support payments can have on your credit.
On Time Payments. On time payments are not tracked on your credit report as an account. They do not contribute to your payment history.
Missed payments. Depending on the terms of your child support arrangement, a parent paying support will either pay the custodial parent or guardian directly or the state agency responsible for dispersing and collecting child support. If you miss a child support payment, or worse, a series of child support payments, the state agency will report this behavior to the credit bureaus. In some states, you have to have missed a certain amount of payments before you will be reported. And if you pay the custodial parent or guardian directly, that person would be responsible for reporting it to the state.
The impact of being reported late on child support — like being late on a mortgage or credit card — depends on your current credit standing and how many payments you miss. For example, someone with excellent credit who only missed one payment will not see as much of a ding as someone with poor credit who has missed multiple payments. But no matter your status, the missed payment notice can stay on your credit report for up to 7 years.
Delinquency letter. In many cases, the first indication you will have that there is an issue that might be reported to the credit bureaus will be the receipt of a letter saying that you are behind. If you receive a delinquency letter, get in touch with the state agency immediately and take steps to remedy the situation. There may be enough time to prevent it from hitting your credit report.
Collections and clawbacks. If you make a habit of missing payments, your child support can be referred to collections. This, in turn, will show up on your credit report, and can also stay there for up to 7 years. Back child support can also be garnished from paychecks (it was also the only reason money otherwise due in stimulus checks under the CARES Act to qualifying recipients was withheld.)
It’s not just about today, but your ability to borrow in the future. It’s important to understand that missed payments are not the only potential impact on your credit picture. Your child support obligation will also factor into your ability to borrow in the future. Why? Because child support — like rent, car, or student loan payments — are considered a monthly expense. When lenders decide whether or not to give you a loan, they look not just at your repayment history but at your entire financial picture, including whether you are able to keep up with your current obligations.
How to recover. Even though delinquencies stay on your credit report for a long time, there are several things you can do to brighten up the overall picture. First, focus on the circumstances at hand. If you lost your job and that’s why you can’t keep up, try going back to court to renegotiate your child support agreement to make it more affordable going forward. Second,
work toward paying down the debts as quickly as you can. Even if the missed payment note stays on your credit report, once the debt is repaid, it will be marked as “satisfied.” And third, make your best effort to stay current going forward. The more time you can put between yourself and the missed payments, the less your credit picture will suffer.
With Rebecca Cohen