How Does Divorce Affect Your Credit Rating?

Credit RatingDivorce does not directly affect your credit rating. There’s no factor for divorce or marital status when calculating credit, but divorce does cause a lot of upheaval, specifically to your finances.

As if the stress of ending a marriage wasn’t bad enough, the impact of the financial strain that tends to result can hurt your credit score. Going from two incomes to one can make it hard to pay all your bills on time, and if you fall behind, that will hurt your credit.

The first thing you need to do when separating from your spouse is to come up with a new budget that takes into account your reduced income. If you’re expecting any child support or alimony as part of the divorce settlement, do not include it in your budget. Many spouses avoid making these payments as a form of revenge against their ex-spouse, regardless of what the court order says, while others are simply unable to make the payments due to their own financial circumstances. Either way, you’re better off not depending on that income.

Joint accounts that have both your name and your ex-spouse’s name can also be problematic, as can shared debt. Judges generally assign one spouse to be responsible for handling the account/debt, but your credit score doesn’t know that, nor does it care. As long as your name is on that account, your credit score will be affected by it. In some cases, when divorces get nasty, people will intentionally avoid paying off debt in order to hurt their ex-spouse’s credit rating. Of course, doing so also hurts their own credit rating, but people rarely act rationally when they’re hurt and angry.

For this reason, you will want to keep track of all accounts that bear your name, even if you’re not the primary account holder. It’s a good idea to at least make the minimum payments, then ask the court to order your ex-spouse to reimburse you for those payments.

Remember that joint accounts aren’t the only accounts that can affect your credit score. Any accounts on which you are listed as a cosigner or authorized user can also be used to hurt your credit score. Make sure all your accounts are in order when going through a divorce, and leave no stone unturned when making sure your name is only associated with the accounts for which you are directly responsible.

For this reason, when dividing up assets and responsibilities in the course of a divorce, it’s best to get one name completely removed from any joint accounts you held with your spouse during the marriage. Whether that means getting your name removed from accounts for which they are now responsible or vice versa.

Alternatively, you can simply close those accounts (both over the phone and in writing, and make sure you have a copy) and ask them not to reopen the account. The best way to regain total control of your finances after a divorce is to make sure your name is only associated with the accounts for which you are responsible, and that the accounts for which you are responsible bear only your name.

The attorneys at Sherer Law Offices have been providing legal representation for divorce cases, as well as all types of family law for more than 20 years. Our experienced divorce attorneys will take the time to really listen to your unique situation so that they can plan strategies that can best protect your best interests. 

How Do I Protect My Credit Score During a Divorce?

money troubleAlthough we understand that divorce can be exhausting mentally, emotionally, and physically; it is essential to keep your financial matters in order and not let unnecessary financial stress add to your exhaustion.

Your marital status does not have a direct impact on your credit report, so filing for divorce will not directly affect your credit score. However, the activity from joint accounts can impact your credit. Cover your bases and consult with your attorney on how to protect your credit during and after your divorce.

The following are some things you can do to keep your finances and your credit in check while you are going through the divorce process.

Divorce Law and Finances

Divorce itself can be complicated, but so can separating your finances and assets. Consult with a well-qualified professional who knows the law. There are two important issues to be conscious of; community property and joint accounts.

When you open a credit card, you are entered into an agreement with the credit card company, or creditor. Your final divorce papers may designate who is responsible for certain debts, but that does not release you from or change the agreement you have with that creditor. It doesn’t matter if you or your ex takes over or if you are a cosigner, the creditors can still hold you responsible for paying the debt if your ex neglects to pay.

If you live in a community property state there will be additional issues to consider. Laws vary from state to state, so you need to consult with a well-qualified professional to find out how your debts will be handled.

Credit Monitoring is Essential

During the divorce process, keep a careful eye on your credit report to make sure everything is reported correctly. Creditors usually post activity on a monthly schedule. It may take a little time for changes to accounts to show up on your report. Checking regularly will make you aware of any creditors you need to follow up with after an extended period of time.

You can enroll in a free credit monitoring service that will alert you to any changes and help you spot wrong information. Watch out for accounts you did not open and for hard inquiries from unknown creditors.

Be Diligent About Managing Your Shared Accounts

If you’ve been married for a long time, you probably have several joint accounts with your spouse. Even after the divorce, accounts that are shared and loans that have been cosigned will most likely still show up on both of your credit reports. If your ex misses a payment or spends too much, that activity could cause your credit score to take a hit. The creditors of these accounts can still come after you for the payments, or worse, collection agencies could start calling you.

It may become necessary to start separating your accounts. You’ll need to review your credit report and look for any joint accounts. You must also keep in mind that not all agencies report your account activity to the three major credit bureaus. This means that your credit report will not always show the complete picture. Make sure you look at the original account agreement and look for other accounts you might have overlooked.

When the accounts in question have been identified, contact the lenders and see what options are available to remove any “authorized users.” Joint accounts like credit cards, checking or savings accounts, and retirement accounts are a bit more complicated. The solutions will vary due to contact and legal obligations. Talk to your divorce attorney and your creditors for options that are available to you.

If you have other questions about divorce, please CONTACT Sherer Law Offices to schedule a consultation.