Many people in Rhode Island pay or receive child support, believing that the payments are used to maintain a lifestyle for the child, including shelter, food and clothing. Many are surprised to learn that these payments can affect obtaining a loan, especially if the borrower's credit score contains dings and dents.
High risk lenders reportedly have a problem when considering a borrower who receives a portion of their income in child support. The uneasiness stems from the inability to garnish the support paid to the person with the child(ren). If the borrower does not pay the loan, the car can be repossessed and the lender proceed to attempt to collect the balance due. These lenders cannot garnish the financial assistance for the child that is received by the borrower. However, if the court ordered payments received is only a small portion of the borrower's total income, the lender may still make the loan.
The parent who is paying support for a child and who is behind in payments faces other challenges. Lenders believe that persons behind in child support frequently change jobs; their experience is that once a payor's income is garnished, the payor moves to another job to avoid the garnishment.
Also, any judgment for back due support (child support arrearage) can also show up on that person's credit report. This information is used to deny credit as well.
This does not mean that a lender automatically rejects a person paying or receiving financial assistance. A recipient should attempt to have other income in addition to child support. A payor of support not fall behind and should arrange to bring the support payments up to date with the recipient or state agency collecting the support. In either event, a potential borrower should bring documentation concerning income and the payment/receiving of child support.
Rhode Island child support payments are based upon guidelines established in the late 1980's and revised regularly as required by federal mandate. In June 2012, the latest update revised the guideline amounts incorporating changes that have occurred since 2007 (the last prior update) in federal tax rates, federal poverty guidelines, inflation, price levels and housing costs in Rhode Island. The federal self-support reserve has been increased from $851 per month to $907.50 per month
To learn more or if you are behind in paying or receiving court ordered financial assistance for a child, contact Steven Hirsch. Too often, the person paying support loses his/her income, loses a second job or has an additional child and fails to return to court to seek lower payments.
Source: Auto Credit Express, "Child Support and Bad Credit", Steve Cypher, Sept. 24, 2012