Oftentimes, what buy-here, pay-here operators and their related finance company underwriters check when considering an applicant is their child support status and if they’ve maintained those payments.

A new TransUnion public sector analysis shed new light on how those child support activities appear on credit reports.

TransUnion reported two-thirds of delinquent child support payments remain in arrears 12 months after being reported delinquent.

What’s more, TransUnion discovered 95% of accounts delinquent for 12 months will remain that way for at least three years.

TransUnion said the findings underscore the difficulty of recouping missed child support payments and the importance of early interventions.

TransUnion’s report titled, Predicting Child Support Payment Delinquencies, identified three key credit behavior trends that can provide an early warning to government agencies responsible for enforcing child support payments.

“Our study found that using traditional credit scores to assess noncustodial parents’ ability to pay are not very effective by themselves,” said Jeff Huth, senior vice president of TransUnion’s public sector business. “However, a more holistic approach helps uncover financial stress ahead of delinquency to better ensure children continue to receive the financial support they need.”

Researchers analyzed five years of TransUnion credit data from approximately 215,000 anonymized records. The report observed parents who had their missed child support payments reported to TransUnion for the first time to better pinpoint what precipitates nonpayment and what risk indicators are present in their credit files.

While credit scores can provide directional guidance for risk of nonpayment, TransUnion acknowledged they leave a significant gap for predicting delinquency and can even be misleading when applied to assessing risk of missed child support payments.

For example, many parents in TransUnion’s analysis saw their credit scores improve between the start of the study’s observation period to a month prior to their first missed child support payment.

In addition, TransUnion said 35% of those who were delinquent had between a near-prime and super-prime credit score the month before their first delinquency. However, trended credit data revealed three primary, high-risk credit behavior segments predictive of future child support payment delinquency.

Credit Score Distribution of Consumers in Study Population

 

Subprime

Near Prime

Prime

Prime Plus

Super Prime

Beginning of Observation Period

68% 

17.6%

8.6%

3.7%

2.1%

Month before first child support delinquency

64.5%

19.4%

9.7%

4.2%

2.2%
 

Ratings based on VantageScore® 4.0 (Subprime = 300-600, Near Prime = 601-660, Prime = 661-720, Prime Plus = 721-780, Super Prime = 780+)

Source: TransUnion

Other findings in the TransUnion report included:

1. Expanding credit lines

More than two-thirds of the parents in the analysis opened a new credit trade within 12 months of their child support arrears being reported to TransUnion. For nearly 30% of parents, the gap between their most recent trade and first child support payment delinquency was three months or less.

2. Sharp increase in credit utilization

More than one-third (34.4%) of parents who defaulted on child support payments had 50% or higher credit utilization. Notably, half of that group utilized 75% or more of available revolving credit.

3. Reduced credit availability

Approximately three in 10 parents (29%) in the analysis had fewer revolving trades such as credit cards and other lines of credit at the time of a reported child support delinquency than at the start of the observation period.

TransUnion said the findings illustrate the need for not only a more comprehensive approach to monitoring noncustodial parents’ financial situations, but for an individualized approach to proactive outreach that provides appropriate supports to help them remain current on child support payments.

“Once a parent falls behind on child support, it becomes increasingly less likely that they will recover, making enforcement after the fact a losing game,” said Greg Schlichter, director of research and consulting for TransUnion’s public sector business.

“Agencies that leverage the insights found in our study can instead direct resources toward delinquency prevention, which is more cost effective for the state and helps ensure stability in the lives of children,” Schlichter went on to say.