Three Signs to Spot Struggling Parents Before a Missed Child Support Payment

A recent TransUnion study found 95% of parents with six consecutive months of missing child support payments will continue to miss their obligations. The study also found enforcement agencies have a short window to effectively identify nonpayment risk before an account fall into arrears — typically less than three months.

With case managers and child support agencies already stretched thin, patterns of sustained nonpayment among many delinquent parents highlight increasing challenges in enforcing court-ordered child support, maintaining collections and reducing arrears.

It’s critical agency case managers identify struggling parents before payments are missed. The good news about alleviating these gaps is predicting child support nonpayment risk is possible.

Understand what warning signs exist

Child support agencies can use traditional credit reports to monitor debt and assess a noncustodial parent's ability to make child support payments at a point in time. Credit information that provides a snapshot in time can also help case managers prioritize collections for parents in arrears. When child support enforcement personnel pull this kind of credit information — known as a ‘soft inquiry’ — the credit score of the parent is not impacted.

Our analyses of child support accounts in arrears reported to TransUnion also identified leading indicators of future child support payment delinquency. We found trended credit data can help reveal a more holistic picture of nonpayment risk. By providing visibility into noncustodial parents’ payment patterns and behaviors over time, trended credit data demonstrated three primary, high-risk credit behaviors that indicate significantly more likelihood of near-term child support nonpayment:

1. Account closures or credit limit decreases can stress a parent’s financial situation
   Parents with material decreases in their overall credit limits — through trade-specific decreases and account closures — may find themselves in tighter financial straits and be less likely to make child support payments in full and on time. Many of these parents have limited credit histories to begin with, which can impact their options to expand total credit limits as they start to decline. Regardless of their ability to access additional credit, a reduction in total available credit interrupts a parent’s financial status quo and may be cause for concern for child support case managers.
   
   Nearly a third (29%) of parents in our analyses had fewer revolving trades — an account like a credit card or line of credit — at the time of a child support account falling into arrears than at the start of the observation period. Revolving trades can be used repeatedly, and consumers can pay the full balance, a minimum amount due or an amount in between. Consumers can also borrow against these trades to repay other obligations. The net effect of closed trades can greatly impact a parent’s ability to pay child support. The median credit limit on one of these closed trades in our analyses was $1,500.
   
   
2. Utilizing most or all available credit may signal hardship
   Another indication of financial stress is a parent utilizing most or all available revolving credit. A high percentage of parents in this category had open trades that were typically paid in full, but began carrying a balance month-to-month ahead of missing their first child support payments and falling into arrears. Sudden and/or significant debt accrual on revolving accounts can signal a parent is struggling financially.
   
   More than a third (34.4%) of parents who defaulted on child support payments had 50% or higher total credit utilization.¹ Notably, 17.5% of parents utilized 75% or more of available revolving credit. The median utilization rates for common types of revolving debt ranged from 36% for bank cards to 8% for retail cards. For reference, many credit experts recommend not exceeding 30% card utilization.²
   
   
3. Surge in newly opened credit trades may indicate risk
   Rapidly expanding ones’ credit profiles, especially if done without retirement of prior obligations, can increase repayment risk on other owed debts. Most parents observed in this segment were not considered “new to credit”,³ yet 60% opened at least half of their active credit trades in the 24 months before falling into arrears. More than 15% did so in the six months leading to their child support delinquency. For many parents in this segment, trades from the past two years make up a significant portion of overall open trades.
   
   The types of new credit products being used in these scenarios each carries its own risk. Our analyses showed new credit can be a useful tool for parents looking for temporary “breathing room,” but only if that debt is properly managed. If left unpaid, debt on these new cards can grow quickly and should warrant concern from case managers. Installment debts (e.g., personal or auto loan) can support income generation that improves financial stability. However, they also immediately result in more significant repayment efforts from borrowers. New personal installment loans and auto loans were particularly strong indicators of an upcoming child support delinquency.
    

Child support agencies can view and monitor trended credit information to better assess a noncustodial parent’s ability to make child support payments as financial situations change over time. In our analyses, trended credit data proved to be a more reliable tool for child support agencies and case managers for a few reasons:

• A view of credit utilization is indispensable to provide a clearer picture of immediate financial stressors impacting a parent’s ability to pay.
• Case managers attuned to parents’ credit profiles can identify new activity that may signify increased repayment risk.
• Personnel can monitor and react to new lines of credit quickly, working with parents to ensure they remain capable of prioritizing and meeting their child support obligations.
• Recent credit expansion activity provides an opportunity to reevaluate arrears risk for child support payments.
• Differentiating between arrears risk scenarios can unlock the capability to segment noncustodial parents for early, customized intervention strategies. For example, engaging a parent with reduced available credit may require different tactics and messaging than one who took out two new car loans.

Not every parent takes the same path to missed child support payments. Some parents’ financial profiles show earlier warning signs — often exhibiting credit behaviors an untrained eye may not see as risky. Agencies can improve child support order enforcement by building a data-driven approach based on trended credit data to manage risk and inform intervention efforts without impacting a parent’s credit score. This is a cornerstone of building a data-driven case management strategy that delivers the right interventions to the right parents at the right time based on their evolving financial situations.

To learn more about the methodology of our analyses and strategies for data-driven child support enforcement and risk intervention, download the TransUnion guide: Predicting Child Support Payment Delinquencies.
 

1 For example, a 36% total utilization rate means that for every $1 a parent had available in credit across all of their revolving accounts, they carried a $0.36 balance. It is not a trade-specific measure.

2 30% Credit Utilization Rule: Truth or Myth? – NerdWallet

3 New-to-credit consumers are those where the oldest trade on their credit file is 0-24 months old