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Credit Score And Divorce: Credit Score During And After Divorce

Credit Score and Divorce: Credit Score During and After Divorce

With so many issues to deal with during a divorce, it’s easy to overlook what may be happening with your credit score. While getting divorced does not damage credit directly, the related financial issues that arise could affect a person’s credit.

Credit Score and Divorce

Although marital status is not a factor in calculating your credit score, there are a number of ways a divorce can impact it.

1. Missing Payments. One spouse may remain in the marital home, taking on a larger (or full) share of expenses. In cases where child support, alimony, or spousal support is in place, there may be a financial dependency on the ex-spouse. All of a sudden, the possibility of a missed payment becomes more of a reality. Missing payments is a leading reason for a credit score to drop.

2. Joint Obligations Change. Creditors are slow to non-responsive when it comes to updating who is obligated on a debt. Mortgage payments, car payments, and many other expenses are commonly considered a joint obligation, regardless of whose name is on the bill or title. Even in the event that a judge orders one spouse to make payments for joint debt, if the responsible spouse fails to do so, the creditor reports the issue for late or non-payment to credit reporting agencies. It is easy to see how joint debts can become substantial problems in terms of someone’s credit score upon divorcing.

3.  Joint Debts. Even if the judge orders one spouse to make payments on an outstanding debt, if the spouse fails to do so and the debt is still seen by creditors as a joint obligation, both credit scores are going to take a hit.

4. Lack of Independent Credit History. According to the Federal Trade Commission, women are particularly vulnerable losing their credit  altogether after a divorce. If most or all of your credit history is built on joint obligations, you may not have any credit history under your own name. For this reason, the FTC reports that women in particular may have more adverse effects on their credit scores following divorce.

Check Credit Reports Frequently During and After Divorce

Unfortunately, it is not uncommon for one party to open up a new line of credit obligating both spouses during the divorce. It may be prudent to freeze your credit during divorce proceedings.

You should also monitor your credit reports and scores. Monitoring credit reports keeps you informed of any changes or unpleasant surprises. You’re able obtain a free credit report once a year from the three credit reporting companies, including Experian, Equifax, and TransUnion. The Federal Trade Commission reports that women, in particular, may have more of an impact regarding their credit score after divorce.

Protecting Your Credit Score During a Divorce

While it may not be possible to maintain a perfect credit score when going through a divorce, there are some things that can be done to protect credit, including:

  • Minimize your debt as much as possible: If you’re going through a divorce it is a good time to pay off as much debt as possible so you are not left with joint obligations.
  • Create a new budget: You need to plan for your own debts, but also the possibility your ex-spouse may fall on hard times. You are often better off making a payment to protect your credit score than trying to come back and clean up a credit score later.
  • Remove your spouse from being an authorized user: Check your credit cards and any bank information to make sure your ex-spouse does not have permission to make changes to your account.
  • Open individual accounts: If you only have joint accounts, make sure you open individual accounts under which your spouse does not have access.
  • Keep an eye on joint obligations: Your ex-spouse is likely not going to tell you about missed payments. You’ll want to keep an eye on joint obligations like mortgage payments.

Rebuilding Your Credit Score After Divorce

The two primary factors that impact credit score are the level of debt and payment history. Some of the things you can do to protect your credit and begin to rebuild include:

  • Create or modify your budget. It is imperative to determine what can and cannot be afforded. Credit cards and loans have a direct impact, so it is important to make payments on time and make the most important expenses (mortgage or car payments, etc.) a top priority.
  • Adjust to living on one income. When married, spouses live on a joint income. Those who become single often find it difficult to live on one income, so adjusting is essential. Whether it means dining out less often, buying fewer groceries, removing subscriptions, or refinancing an auto loan, consider eliminating whatever is necessary to adjust to a lifestyle that can be maintained by a single income.
  • Review your credit report and cut financial ties with your spouse. Credit reports and billing statements can be used to develop a list of joint accounts. To ensure these accounts are closed, request closure with creditors both by phone and in writing. It is also important to request the creditors do not re-open these accounts.
  • Put debts in your name only. When one spouse is responsible for a debt it is a good idea to put the debt in that spouse’s name so that it isn’t a joint debt. Transfer balances on credit cards to another credit card, refinance loans and do whatever it takes to make it so that you can pay the debts in a timely fashion. In some cases, an attorney may be necessary to work out any details that spouses cannot agree on.
  • Remove authorized use by your ex-spouse on credit cards. While many ex-spouses trust each other, it is never a good idea to keep an ex-spouse listed on credit cards as an authorized user. Should an ex-spouse decide to go on a grand shopping spree, the creditors will not hold them accountable.
  • Make sure to monitor all accounts and payments. In many divorce situations, one spouse is liable for paying accounts in the ex-spouse’s name (for example, a mortgage when the ex-spouse remains in the home). Be sure to keep on top of due dates, and check to see if payment has been made or is pending the closer the due date comes. It may be necessary to make a minimum payment on an account when your ex-spouse does not make it in order to protect your credit. In this situation, the judge can request repayment to you by your ex-spouse.

We hope you found this information about credit score and divorce helpful. If you’re facing or considering divorce, reach out to set up an appointment with our firm. You can contact us at (817) 900-3220.

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