Credit Repair Services for Parents in the Child Support System
Credit reporting and credit repair
Child support is one kind of debt that a noncustodial parent may find reported on his or her credit report. Other debt a noncustodial parent has accrued, including credit card debt, auto loans, mortgages, and student loans, will also appear on a credit report, and have a negative impact on the overall credit score if they have not been paid on a regular and timely basis. For more information about all of the elements that go into determining a credit score, see the fact sheet on Credit Scoring on the www.IDAResources.org Web site.
Federal law mandates that States periodically report the names of noncustodial parents who have delinquent payments, as well as the amount they owe in arrearages, to credit reporting bureaus. If the amount owed is over $1,000, they are obligated to report, and if it is less, they report at their discretion. If a State or local child support office does report, the amount of child support past due will appear on the noncustodial parent’s credit report as debt.
The appearance of unpaid child support on a credit report can lower a noncustodial parent’s credit score, making it more difficult and costly to obtain loans or apply for credit. Poor credit can also impact a parent’s ability to find a job, rent an apartment, or obtain insurance if any of those entities run credit reports as a part of their application process. These problems are compounded if the noncustodial parent has other sources of debt in addition to child support. A custodial parent without a child support obligation but with a poor credit score can face the same barriers.
Credit repair services are tools to assist a participant in improving his or her credit score. Credit repair involves knowing about and correcting credit information that has been reported, and then taking steps to modify behavior and improve a credit score going forward.
How can custodial and noncustodial parents benefit from credit repair services?
The first step in credit repair is accounting for debt—credit cards, loans—as well as any collections or legal actions related to a parent’s finances. Parents can also learn whether there is any inaccurate information being reported on their credit report. Working with AFI staff to correct any errors in an existing credit report could bring about improvements for a parent. See the fact sheet on Credit Scores for more information.
If there is accurate but negative information on a credit report, it is important to begin taking steps to repair credit. The negative information will be on the report for up to 7 years (and bankruptcy for up to 10 years). Getting other sources of debt under control can help the overall situation of noncustodial parents dealing with child support debt as well as custodial parents seeking to maintain the family’s financial health. The steps in credit repair, which include establishing a budget to manage current and future spending, making arrangements with creditors, and saving to start paying down past due debt, are all helpful for overall financial health. For tips on avoiding debt, see the fact sheet Predatory Lending and the section on Managing Credit Card Debt in the Financial Education section of www.IDAResources.org.
How can child support and AFI grantees partner to provide credit repair services to parents?
Child support agencies and AFI grantees can work together to identify individuals in need of credit repair services; child support agencies can refer ideal candidates to AFI. Some AFI grantees provide credit repair services in-house through their staff, or they partner with or refer clients to credit counseling agencies that can provide more personal or in-depth services, such as one-on-one counseling to devise an individualized plan to increase their credit score.
A list of government-approved credit counseling agencies that also provide pre-bankruptcy advice can be found from the United States Trustee Program. For more information about what AFI grantees need to know about credit repair, see the resources provided during an AFI Grantee Conference Call.
Also, both agencies can inform noncustodial parents about the potential impact of unpaid child support on their credit report, and ensure they are taking advantage of child support services to modify or reduce child support debt if appropriate.