Divorce can be a difficult and emotionally draining experience for many people.
Making separate living arrangements, dividing joint finances, and ending a once happy marriage can be difficult.
People often neglect their credit during a divorce; unfortunately, this is a fatal error.
Your credit ratings can suffer if you don’t protect them during a divorce. And if your divorce is hurting your credit, these issues can stay with you for a very long time.
How Does Divorce Affect Your FICO Score?
Changes in your marital status do not affect your credit because your credit report does not reveal whether you are married, single or divorced. However, managing joint accounts with your ex-spouse could have an impact on your credit reports.
Here are some scenarios where a divorce can affect your credit score.
Default of joint and several debts
Going through a divorce can be emotionally taxing. Therefore, it can be easy to forget to pay a credit card or car loan payment. You may unwittingly forget to make a payment on the debt you and your spouse shared, but there’s a deeper reason for that.
Couples acquire joint debts such as mortgages, car loans, and credit cards after marriage. A court declares who will be responsible for paying the specific debt in a divorce settlement agreement. However, in the eyes of a creditor, even if your husband is responsible for making payments on your joint credit card, you are still responsible because the credit was extended to both of you.
Many people mistakenly believe that because a judge has made their spouse responsible for certain joint debts, they are no longer required to pay them. Your credit score can still be affected if your spouse misses a payment while the debt is still included in your credit report.
You will still be responsible for the debt if your ex-spouse makes many transactions on a joint credit card account. In reality, even if all payments are made on time, a high rate of credit utilization on a common credit card can hurt your credit rating as well as that of your ex.
It is crucial to be constantly aware of the information contained in your credit report. Whether you are going through a divorce or not, you can check your credit report and credit score. This will help you determine which credit cards and loans are in your name, as well as any potential missed or late payments.
It’s a good idea to make minimum payments on time after reviewing the information in your credit report.
Many people become vindictive following a divorce and refuse to pay the debts they share with their spouse. Make sure you always make the required minimum payments so you know what’s on your credit report. otherwise, your credit may be at risk.
Closing joint credit card accounts
Regardless of your marital status, closing a credit card can affect your credit utilization rate. Your total amount of available credit decreases when you close an account.
Say you have two credit cards with a credit limit of $10,000, giving you a total of $20,000 of available credit. Using $5,000 on a single card will only consume 25% of your available credit. However, if you cancel a card, you will only have $10,000 of accessible credit. Your usage is now 50% even though you’re not spending any more money, and higher usage will hurt your credit score.
Couples who have decided to separate do not want to keep their joint credit cards when they separate. Just be aware that canceling a common credit card could lower your credit score due to the potential influence on your credit usage.
Your ex-spouse deletes your name as an authorized user
Being an authorized user on your husband/wife’s credit card can improve your credit score even if you’re not obligated to pay his credit card bill, as long as he uses it consistently and properly. to make payments on time. This can be extremely helpful for a spouse who previously had no open accounts on their credit report.
However, your credit usage may be damaged and your credit score may drop if you are no longer allowed to use your spouse’s credit card(s).
Tips to Protect Your Credit Score During Divorce
Every divorce is unique. Regardless of gender, it can be difficult to disentangle your credit obligations from your ex-spouse.
Ultimately, it’s up to you to make an effort to protect your credit during a divorce. These three ideas could be useful.
To prevent a vengeful ex-spouse from opening fake accounts in your name, freeze your credit reports with all three credit reporting agencies.
Whenever possible, work with your ex to split joint accounts. If you have a joint mortgage, for example, the spouse who maintains the house may be forced to refinance the debt in their own name. Selling the asset (like the house or car) and using the proceeds to settle other joint debts is another possibility with joint loans (like mortgages and car loans).
Create a personal bank account. Consider setting up new checking and savings accounts with an online bank to protect your finances. Online banks are convenient and offer better interest rates than traditional banks. Capital One’s online savings account has no minimum balance requirement and offers ten times the national average interest rate on all balances.
To avoid the vagaries of a vengeful divorce, maintain a polite relationship throughout the divorce process. The best course of action is to pay off your debts before filing for divorce. You can subscribe for a short term debt consolidation loan to clear your debts. Or, you can both settle your debts with your creditors.
Try converting an account to an individual account if refunding and closing are not options. Explore your choices by contacting each creditor.
Check with the lender to make sure your spouse isn’t listed as an authorized user, even if you think an account is in your name alone. Make sure their name is removed.
The most crucial thing is to ensure payments are made on time as long as your name is on a joint account. This can make a clean break from your financial obligations without risking them following you long after the divorce is official.
It’s wise of you to want to preserve your credit, especially during times of significant life transition. Monitoring your credit reports periodically is one way to protect your credit. All three credit reporting agencies can get a free credit report every 12 months. By doing this, you can maintain good credit and avoid unpleasant surprises when you enter a new phase in your life.
Credit damage from a divorce can sometimes be unavoidable. It may take some time to recover financially if you have been a stay-at-home parent, for example, and need to find work immediately. However, your creditors will not wait for your payments.
Your credit can suffer from missed payments, delinquent accounts and collections. In extreme circumstances, you may even have to declare bankruptcy during or after a divorce.
Here’s some good news for you if your divorce has damaged your credit. Over time, you can rebuild your credit. If possible, you should try to protect your credit throughout a divorce. However, if the worst should happen, know that you don’t have to live with damaged credit for the rest of your life.