Two Must Follow Rules To Protect Your Credit Score After A Divorce
Divorce can be a tough time in many ways. You’re dealing with emotional issues, separating assets, possibly separating children from one of their parents, and trying to get your respective lives back in order. The last thing you need to be worrying about is whether or not your former spouse could be ruining your credit score.
I first met Sheila when she was applying for a home loan. She had a bad credit score because the mortgage on a home she bought with her ex years earlier was dangerously close to foreclosure. “I don’t understand why this should affect my credit,” said Sheila. “I have a divorce decree and a quitclaim deed. Isn’t that enough to protect myself from the problems associated with divorce and credit scores?”
I explained to her that those documents were not, in fact, enough to protect her. The fact that she and her ex jointly applied for the mortgage loan meant that the bank still considered her just as obligated to make payments as her ex. This continues until one person refinances the loan in his or her name.
If your ex keeps the home but does not refinance it into their name alone, your credit score will be damaged if your ex becomes late on a payment. On the flip side, if you get the house and don’t refinance, your ex is still legally responsible for the payments as well. And what if they get sued? The courts could attach a lien to your ex’s properties, which could include your home!
Divorce and Credit Scores Rule #1: If you are going through a divorce, you must immediately refinance the home in the name of the spouse who retains ownership. During the transition process, protect your credit by making mortgage payments directly to the bank.
Divorce and Credit Scores Rule #2: Separate any and all jointly held accounts, as well as accounts that list you or your ex-spouse as an authorized user. This includes credit cards and auto loans.
Even in the “best” divorces, couples often have a hard time separating finances and agreeing to the terms of the divorce. Divorce often means that a couple has less access to resources. One household becomes two households, and you might end up paying 100 percent of the overhead instead of 50 percent. Finances can become tight. Even if a person has plenty of resources, the pressures of divorce, custody, courts, and moving can wreak havoc, causing a person to make late payments simply because other items on the “to do list” are taking priority.
For this reason, cancel all jointly held accounts as soon as you begin the process of divorce. You might need to close the account entirely, or you might be able to transfer the card into one spouse’s name. Regardless, decide who will carry the debt, and transfer balances accordingly.
Likewise, remove your name from any accounts on which you are listed as an authorized user. And remove your ex’s name from any of your accounts. To protect your credit score,you should also refinance cars in one spouse’s name only. If you have questions about the procedure for separating accounts, simply call your bank and explain your situation.