How Divorce Impacts Your Credit
Divorce statistics do not reflect a “happily ever after” marriage for the majority of couples. When you realize there’s a possibility your marriage may end, take action to protect your credit.
When taking inventory of all assets, please remember to include all jointly held credit cards, auto loans, and mortgages. This may seem insignificant, but it will certainly affect your credit score after you’re divorced. Learning to build credit means you must also learn how divorce can impact your credit.
If you and your partner kept all credit separate during your marriage, your credit score will not be impacted by your ex-spouse’s credit behavior at any time before, during, or after your marriage. However, if your spouse is an authorized user or joint holder of a credit card, an angry former spouse may attempt to create financial havoc in your life by charging on jointly held credit cards without making a payment.
All debt incurred on jointly held cards are the responsibility of you and your ex-spouse. Therefore your ex-spouse’s financial decisions impact your credit score after divorce. For example, your ex-spouse’s late payments and collection notices will be on your credit report after your divorce if you do not separate the accounts.
Before the divorce, you should cancel all jointly held credit cards. This eliminates any chance of a negative impact on your credit report from your ex-spouse’s financial mismanagement. Some credit card companies may require a special type of notice to cancel jointly held cards, such as a written notice. Doing this as soon as possible is in your best interest in terms of divorce and credit. After a divorce, your ex-spouse may need to charge many things to make up for reduced income. Even if your ex is not being malicious, this could harm your credit score by causing your utilization rate (the balance as a percentage of the credit card limit) on jointly held credit cards to increase.
Credit cards aren’t your only consideration in a divorce. Don’t forget your mortgage. If you and your ex-spouse own a home together, both of you are responsible for the debt, unless you have worked out another arrangement. If you choose not to sell, refinance. Use a quitclaim deed to take your name off the title of the property. But don’t stop there! Your ex must also refinance. If not, your credit score will decrease if he or she becomes delinquent on payments.
If you retain ownership of your home and do not put the property in your name, you have not fully protected yourself. If your ex-spouse is sued, the house might be seized to pay off your ex-spouse’s debts.
Are you separated? No problem. Here are a few steps to prepare for an eventual divorce. Pull your credit report and assess your financial situation, noting all existing credit accounts. Keep copies of everything in a safe place. If you have joint accounts, have a discussion with your spouse about who will assume payments for which credit accounts.
If you are on peaceful terms with your spouse, have a frank discussion about the impact of divorce on your credit. Both of you need to protect yourselves. Consult an attorney. Create the best possible plan to keep your payments on schedule to protect your credit.
To reduce the negative impact of divorce on your credit, cancel all joint accounts and contact the three credit bureaus to update your address information.