Do Late Alimony Payments Affect Your Credit Score?
Being delinquent on your alimony payments likely won’t affect your credit score – at least right away. If your payments are sent to collections, that may be reported to the credit bureaus in which case your score would take a hit.
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Many divorces come with a lot of consequences, such as bitter custody fights and arguments over finances. While many parents end up paying child support to the custodial parent, a lesser-seen occurrence is alimony, or spousal support.
Alimony is often paid when one spouse has been dependent on the other for financial support, such as in the case of a stay-at-home parent whose chief occupation has been raising the couple’s children. A judge may order one party to pay the other alimony to help support them, either for a set amount of time or until the supported party remarries.
If you’re the party having to pay alimony and you’re delinquent, however, what happens? Can it affect your credit score? The short answer is no—but there are times when late alimony payments can come back to bite you, and it’s a good idea not to get behind on your payments.
Why Late Alimony Usually Doesn’t Affect Your Credit Score
Your credit score is a measure of how you handle credit cards, loans, and any other types of credit. Alimony payments aren’t debt, and so just like a checking account overdraft, they don’t show up as an account or delinquency on your credit report. They also don’t affect your score, regardless of which scoring model the lender uses. That means that when you’re making your payments on time, it also won’t help build your credit.
When Late Alimony Can Affect Your Credit Score
Just because your credit rating isn’t affected by a few delinquent payments, however, doesn’t mean it can’t hurt you. If you are delinquent enough, some states will send you to a collections agency. All collections do show up on your credit report, which means if your alimony goes to collections, it will then be reported by the agency under derogatory marks and collections—not a good place to be.
>> Read More: Getting Collections Removed From Your Credit Report
Your credit score will take a significant hit in that case.
Tiffany Bernethy, a senior loan officer with a large national lender, says that late alimony in and of itself isn’t a deal breaker in obtaining a small business loan, but a collection is.
“Past due alimony does not disqualify a borrower under SBA guidelines,” she says, and many banks’ rules are meant to mirror those set out for Small Business Administration loans. That means you may still be able to get a business loan as well, even if you have past due alimony payments. Since alimony or spousal support payments don’t show up on your credit, your lender may not even be aware you’re late.
If the past due payments are in collections, however, you’ll see those listed right in plain sight on your report—and your score will show the damage.
In some states, you can even be taken to small claims or civil court for not paying your alimony. Each state has its own laws about who is the plaintiff—for a few states, it’s your ex-spouse. In others, it’s the state itself on behalf of your former partner.
If you lose the case, a judgment is filed against you, and you could be subject to things like wage garnishment or loss of your state tax refund. In addition, the judgment will show as a black mark on your credit—and will negatively affect your credit score.
If you’re taken to collections or have a judgment against you for unpaid alimony, the mark will stay on your credit for up to seven years. The good news is that as soon as it’s paid, it will affect your credit score less and less each year. In fact, after only a few years, it may not affect your score at all—lenders know that sometimes things happen; if it’s paid and it’s a few years old, you may not have a problem getting credit.
Divorce is a difficult thing for anyone to go through. Having lingering effects or obligations such as alimony payments can make it more difficult to come back financially from a divorce, but not making those payments can make coming back take a lot longer.
In order to stay financially healthy, don’t let your alimony payments go into collections. That will help keep your credit score safe—and your financial health intact.
Author: Jeff Gitlen