Study Finds 66% of Delinquent Child Support Payments Remain in Arrears 12 Months Later

Rhea-AI Summary

TransUnion conducted an analysis revealing that two-thirds of delinquent child support payments stay in arrears for over a year. The report indicates that 95% of such accounts will remain delinquent for at least three years. It identifies three key credit behaviors predictive of child support delinquencies: expanding credit lines, sharp increases in credit utilization, and reduced credit availability. The research indicates that traditional credit scores alone are insufficient for assessing the risk of missed payments. The findings suggest the need for tailored outreach to prevent delinquencies.

Positive

• Identified three predictive credit behavior trends for child support delinquencies.
• Highlights the need for tailored outreach to prevent future delinquencies.

Negative

• Two-thirds of delinquent payments remain in arrears for over a year.
• 95% of accounts delinquent for 12 months will remain so for at least three years.

New TransUnion analysis identifies three credit behaviors predictive of child support delinquencies

CHICAGO, Dec. 13, 2022 (GLOBE NEWSWIRE) --  Two-thirds of delinquent child support payments remain in arrears 12 months after being reported delinquent, according to a new TransUnion (NYSE: TRU) public sector analysis. What’s more, 95% of accounts delinquent for 12 months will remain that way for at least three years.

The findings underscore the difficulty of recouping missed child support payments and the importance of early interventions. TransUnion’s report, “Predicting Child Support Payment Delinquencies,” identifies 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.

Credit scores offer an incomplete picture
While credit scores can provide directional guidance for risk of nonpayment, 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.

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+)

In addition, 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.

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 3 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.

Tailored and timely outreach
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.”

For more information about the research, read “Predicting Child Support Payment Delinquencies.”

Methodology
To facilitate the research, credit data was used to construct a longitudinal sample of reported “first-time” delinquent parents, which facilitated investigation into financial decision-making before and after a reported child support delinquency.

The anonymized study population consisted of approximately 215,000 parents who had a child support obligation established on or after January 1, 2017; had their first-ever child support delinquency reported on that obligation on or after January 1, 2020; and had one or more open credit trades as of December 31, 2019. In this context, “first” means the earliest time a delinquency appeared on a consumer’s TransUnion credit file.

For this group, TransUnion analyzed credit data between January 1, 2020, and June 30, 2022 (the “observation period”). This study only tracked delinquencies on major credit product types — auto loans, mortgages, credit cards, and personal loans — for trades open at any time during the observation period.

About TransUnion (NYSE: TRU)
TransUnion is a global information and insights company that makes trust possible in the modern economy. We do this by providing an actionable picture of each person so they can be reliably represented in the marketplace. As a result, businesses and consumers can transact with confidence and achieve great things. We call this Information for Good®.

A leading presence in more than 30 countries across five continents, TransUnion provides solutions that help create economic opportunity, great experiences and personal empowerment for hundreds of millions of people.

http://www.transunion.com/business

Contact        
Dave Blumberg
TransUnion

E-mail david.blumberg@transunion.com

Telephone 312-972-6646

FAQ

What does the new TransUnion analysis reveal about child support delinquencies?

The analysis shows that two-thirds of delinquent child support payments remain in arrears after 12 months, with 95% likely to stay delinquent for at least three years.

What credit behaviors are linked to child support payment delinquencies according to TransUnion?

TransUnion identifies three behaviors: expanding credit lines, sharp increases in credit utilization, and reduced credit availability as indicators of potential future delinquencies.

How effective are traditional credit scores in predicting child support payment issues?

Traditional credit scores are not very effective on their own for assessing noncustodial parents' ability to pay child support, according to TransUnion's findings.

What does TransUnion suggest for preventing child support delinquencies?

TransUnion advocates for individualized outreach and proactive support to help noncustodial parents manage their financial situations and stay current on payments.

How many parents in the study had improved credit scores before missing child support payments?

Many parents in the analysis saw their credit scores improve even just before their first missed child support payment, highlighting a flaw in relying solely on scores.