Going Through a Divorce? What You Need to Know to Protect Your Credit History
By Sylvia Burleigh
We all know the statistics; half of all marriages end in divorce. Whether the circumstances that brought your marriage to an end are tragic, dramatic or even amicable – it can be a critical time financially. At a time of deep emotional heartbreak and devastation the easiest thing that can happen is that you neglect or avoid protecting your finances directly, and ultimately harm your credit score, not to mention your future financial well-being.
Typically, filing for divorce itself, does not affect your credit score the way a small claims or civil court judgment or bankruptcy can; rather, it’s the handling of the shared debt and joint accounts that can make a dramatic difference in your credit score and your credit history, if handled poorly.
According to the FTC, it’s important to pay special attention to your joint accounts and make sure they’re paid on time every time during the divorce process. The law states that a creditor does not immediately have to close or convert accounts because of a change of marital status; however, a request from either account holder can accomplish this easily. Some lenders may even have you make your request in writing. In some instances, creditors can have you reapply for an individual credit account and based on the application information extend or deny you credit. With home equity loans or mortgages, lenders may require you to refinance to remove a spouse from the responsibility of paying the loan.
The bottom line is that creditors and lenders don’t care about the specifics of your divorce settlement. It falls on both parties to fulfill their financial responsibility if the account is in both your names, which means if one partner defaults on payments; the other partner is legally liable for the debt.
Bankrate.com recommends you do the following to protect your credit history and maintain an unblemished credit score:
- Check your credit score with all three major credit bureaus. Basically reviewing your credit report with all three credit bureaus will alert you to any joint accounts or debt that may have been neglected. You’ll also have a better idea of which shared accounts and loans need to be closed.
- Open credit accounts in your name only. Obtain individual credit accounts especially if you have not had sufficient time to build your own credit. If done before the divorce is legally decreed, it will not only help you avoid accruing shared debt, but make it easier for you to get credit cards, and bank accounts in your name while married and still sharing joint assets, such as credit cards and car loans. That being said, it’s also important to keep those payments to shared accounts you don’t close current.
- Call creditors to close joint accounts or accounts where your spouse is an authorized user. Closing joint accounts can protect your assets in the future, not to mention your credit score.
- Be mindful that the loan or credit account will still need to be paid off even if it’s in a closed status. This is where keeping a close eye on debts by using credit reports can be useful. Some financial advisors may recommend that you enlist the help of a credit monitoring service. All three credit bureaus; Experian, Equifax and TransUnion, have a fee-based service that can automatically notify you in the event of changes to your credit.
- Close joint memberships including gym memberships or video rentals. These accounts can be reported to any of the three credit bureaus if you or your ex-spouse should fall behind in your payments. Learn how to avoid the small factors that can hurt your credit score.
- Document all letters to creditors asking for joint or shared accounts to be closed. Also document any credit accounts or loans you open in your name.
- Assess your financial picture by requesting all three credit reports after the divorce is final to review any possible overlooked accounts.