Protecting Your Credit After a Divorce: A Detailed Guide
Many people experience credit damage after a divorce, but it’s not because of the divorce itself. In fact, your marital status is not included on your credit report nor is it factored into your credit score. So the physical act of separating or divorcing won’t impact your credit score.
Understanding How Divorce Might Affect Your Credit
While the act of divorcing doesn’t directly hurt your credit, a divorce could indirectly lead to financial troubles that do harm your credit. For example, losing one of two household incomes could cause financial strain that results in missed payments on your credit cards, loans, and other bills.
Divorce could hurt your credit score if payments aren’t made on accounts you hold jointly with your ex or soon-to-be ex. In some divorce proceedings, the judge declares one spouse responsible for the joint debt. That spouse fails to make payment, and the creditor adds the late payment to both your credit reports. It doesn’t matter to the creditor that the judge said the other spouse is responsible for payments.
In some cases, one spouse intentionally damages the other person’s credit, out of anger or revenge. Again, it’s not the divorce that damages the credit score, but the events that occur as a result of the divorce.
Steps for Protecting Your Credit After a Divorce
Remember that payment history and level of debt are the two biggest factors affecting your credit score. Maintaining a positive payment history and minimizing your debt during and after the divorce is crucial to keeping your credit score intact. Here’s what you can do to keep your credit score unblemished during and after the divorce.
- Adjust your lifestyle to your reduced income. You may need to make major life changes to live on just one income. That might mean selling your home and buying a more affordable one. It might mean moving to an apartment. If you can no longer afford your car loan payments, you may refinance the loan or sell the vehicle and buy a more affordable one. You may need to reduce the grocery bill, eat out less, and cut out cable TV.
- Create a budget (or adjust your existing one) to figure out what you can and cannot afford. Prioritize your expenses and maintain the payments that directly affect your credit score, e.g., loans and credit cards.
- Try to cover your basic expenses from your income, excluding alimony or child support. Some vindictive ex-spouses may skip payments, attempt to have the amount reduced, or even quit their jobs to spite you. It might be difficult to live as if you’re not depending on those court-ordered payments. However, if the payments ever stop, you’re already prepared.
- Handle your joint debts. Sever your financial ties to your spouse when you realize divorce is inevitable. Go through your credit report and use recent billing statements to create a list of all accounts that are jointly held. Close these accounts, in writing and by phone for extra security, and ask the bank not to reopen them.
- Remove your spouse’s authorized user status if you want to protect them from running up a balance that creditors won’t consider them responsible for.
- Each ex-spouse should work to get the debts they’re responsible for in their own name by refinancing loans and transferring credit card balances to a new credit. If you and your spouse can’t work out these details together, perhaps the attorneys can reach a more suitable agreement. In the meantime, try to continue making at least the minimum payments on the accounts that affect your credit. Otherwise, the court will have to make a final decision about debt responsibility.
Protecting your credit after a divorce requires diligence and planning. By adjusting your lifestyle, creating a realistic budget, and handling joint debts responsibly, you can maintain your credit score and financial health. Remember, prioritizing payments that directly affect your credit score, such as loans and credit cards, will go a long way in keeping your credit intact during and after the divorce process.