Protect Your Credit During a Divorce must be the first thing to look up for if you find yourself in this situation. According to Psychology Today, in the United States, 50% percent of first marriages, 67% of second, and 73% of third marriages end in divorce.
Every Day Health reports that 1 in 4 divorces in America involves 50-year-olds or above and the marriage length of 20 years or longer. Unfortunately, the statistics are unfavorable, as a result, marriage does not always mean forever and some of the longest marriages can still end in divorce. Along with the sadness and loss of divorce is the unfortunate side effect of debt.
How Does Credit be Affected in a Divorce?
Divorce in and of itself does not hurt your credit. If you have everything lined up prior to a divorce or had good financial standing in the marriage, it does not have to be a certainty that you will end up with poor credit. People do not go into marriage thinking they will get divorced. Couples have ownership of property and responsibility for bills together and this is where a divorce can cause problems with credit:
How does Divorce Hurt your Credit?
Creditors do not consider divorce decrees: When you divorce, you will receive a decree that states who is responsible for paying debts as well as who gets to keep marital assets. Dividing joint accounts and finances can become a point of contention in divorces. Even though you may have a divorce decree saying you retain ownership of a car, but your ex-spouse is responsible for the payments, the creditors do not honor it. If your spouse is late on payments, you will have bad marks on your credit score because the creditor still lists you as a responsible party.
Joint Accounts
Joint accounts stay on your credit report: If you and your spouse had joint accounts, they will remain on your credit report for the duration of the debt. Creditors care about one thing, getting their money back and they do not care if you divorce or not, if you are listed as a borrower or a person responsible for the debt, your credit score will reflect it.
Closing joint credit accounts: When you get divorced, the joint credit card situation is a no-win for your credit score. You will want to get away from being tied to your ex in financial matters because a missed payment or payments reflect on your credit score no matter who is responsible decree but when you do close a joint account, your available credit will go down and in order to get financed or get new credit, that is taken into account.
Finally take your spouse off as an authorized user: You may have a credit card that is not considered a joint account, but your former spouse may have authorized user rights. This is dangerous because the former spouse can rack up charges that you will later be responsible for. You are also giving access to your credit score benefits to your spouse as an authorized user. Conversely, you want to get yourself removed as an authorized user on any of your former spouse’s credit cards as well.
Article that may interest you: Divorce and Credit FAQs
How to Protect Your Credit?
- The very first thing you want to do is to find out where you stand. Get your credit reports and list out all your bills and debts as best you can. Once you have an idea of your financial situation, you can begin to take steps to protect your credit such as:
- Close joint accounts: As soon as you can, be sure to close all joint accounts with your former spouse. You do not want to be tied in any way to the financials of that marriage any more than you must. Also, if the account remains open, your former spouse can continue to add more charges, miss a payment incur late charges, or default altogether.
- Contact your creditors: The lenders with whom you have credit cards or other debts will want to know of the change in your marital status. If the joint accounts have no balance, you can both agree to close the account. If there is a balance left, someone is going to be responsible for paying it. Regardless of who is supposed to pay, you will be responsible if your spouse will not pay it or pay it on time.
- Keep your address up to date: You will want your creditors and anyone else who is associated with your credit score to be able to find you. Of all times, now is not when you should be in danger of having bills or letters arrive at the wrong address.
- Get a credit card in your name: With the loss of your former spouse’s credit, considering it was good, you will need to get your own credit card for two reasons. The first reason is so you can establish your own credit to use in emergency situations. The second reason is that your available credit will be reflected and be a factor in your credit score.
- Refer to credit reports: When you are ready to make a plan, referring to your credit reports can help you triage what needs the most attention to separate from your former spouse or the accounts that need to be paid or managed to protect your credit report. These reports may also help your lawyer make a decision or find areas that can be used to your advantage.
- Adjust your lifestyle: Until you can get a handle on your debts and bills, as well as how much income you will be bringing in, pair down the extras in your life. You may be used to a certain way of living but for now, you need to ensure you are being overly cautious with your money. This does not mean you will always have to live a different lifestyle It just means that until you know where you stand and what you will be able to do, adjust. In reality, you will not be able to enjoy a certain lifestyle if you are up at night unable to sleep because you are struggling financially.
- Pay bills on time: This goes along with adjusting your lifestyle in that you need to make sure you are using your money for what you need first before you use it for what you want. Paying your bills on time will give you a secure feeling that you are taking care of the necessities of your life. It also keeps you from acquiring late fees that drain your money supply. If any of the bills are tied to creditors, this will keep you current and your credit score safer.
- Look for extra income: Not only is it time to take inventory of your debts and cash flow, but it is also time to take inventory of your skills. Since the pandemic, there are more remote jobs available than ever before. More and more people are turning their skills into income via the remote job market. You may be able to apply for a different position at your current employer or move to a new employer to make more money or extra benefits. There are many ways you can increase your income to protect your credit from the loss of the income of your former spouse.
- Learn to manage money: When taking stock of your bills, debt, and income, some people find out that they do not need to create extra income, they just need to learn to manage their money in a better way. You would be surprised at all the little unnecessary expenses that can add up. The whole idea is to manage your money and not let your money manage you. Take a class, either in person or online, watch videos online, read books, and talk to a financial counselor or a friend or family member who is good at managing money. This is the time to seek out the most valuable information to help you keep your credit protected or at the very minimum not make your credit worse than it is.
- Pay off debt: This step may be difficult to do all at one time. If you can, that is great. If you can sell assets from the marriage and use the extra money to pay off debt, that will work too. You may not be in a situation where either of these solutions is possible. If that is the case, prepare a payoff plan that you can keep easily and stick to it. There are many debt programs that can teach you how to pay off your debts.
Resources to Help:
There are multiple resources to help as you navigate the turbulent waters of divorce. When you make the move to get your credit reports, you will want to ensure you get all three reports from the major reporting companies: Experian, Equifax, and Transunion.
- Equifax not only supplies you with a credit report but also offers an abundance of information and resources to help you with your credit. They provide packages that have various levels of services based on your needs. You can get credit monitoring and identify theft protection as well.
- Experian offers a free credit report along with many other services. One of the best features of their website is the education section offering multiple resources to help you manage your credit score. They even offer reviews of credit card companies and loans to help you make the most educated choices possible.
- Transunion offers free services such as Free Annual Credit Report, Freeze Credit Report, Dispute Credit Report, TransUnion Credit Report, Fraud Alert, Active-Duty Credit Monitoring, and True Identity. They offer a variety of self-serve options, so you are not tied down waiting for service or they offer support via email, chat, or telephone.