Divorce is hard emotionally, legally, and financially. Sometimes, people don’t think about what joint accounts can do to harm their credit reports until they finally get around to looking at their credit scores. Don’t let mixed assets affect your credit report after you file for divorce. Here are some ways to prepare for separating your credit and steps to regain your financial independence.
Remember that divorce is only acknowledged by the court. A divorce will not automatically separate you and your spouse financially. All jointly held financial accounts and debts will have to be reconciled jointly or transferred from one party to the other.
1. Contact any lenders about outstanding debt. A collections agency may try to contact you long after outstanding debt has been removed from your credit score. If you have any debt leftover from your marriage, find a way to pay it down, or have the lender remove you from the contract. You may need to get your spouse to agree to the arrangement and he or she may have to prove to a creditor that the debt can be managed singularly.
2. Always pay debt down during a divorce process. In some cases, a spouse may try to use credit cards in an effort to hurt the other party with high balances and debt. Pay any jointly held accounts to prevent a bill from affecting your credit score. Close the accounts or have yourself removed from the account to prevent further abuse.
3. Close accounts that cannot be reconciled. This will ensure that no new debt is added to your accounts if you have trouble removing yourself from them or paying them off.
4. There is no need to separate your credit reports. All credit reports are issued to individuals regardless of marriage status. Making sure that all jointly held accounts are reconciled is the most important credit-affecting factor to consider after divorce.
5. Your ex-spouse is not allowed to receive your credit report after the divorce is finalized. There are a number of ways a report could accidentally be sent to an ex. If he or she has identifying information for you, it is possible that your credit report could be accessed despite the reporting bureaus’ identity protection precautions. You may have grounds for a lawsuit if your ex-spouse obtains your credit report illegally.
6. Have your ex-spouse removed from your report. Even though your report is completely separate and having a spouse’s name on it will not affect your score, having your ex removed as your listed spouse can clarify your situation to anyone who accesses the report.
The bottom line is to reconcile any accounts that you and your ex-spouse held jointly. While divorce will never impact a credit score directly, the status of joint accounts can affect both parties’ credit reports negatively.
If your former partner caused damage to your credit prior to or during divorce proceedings, you may need to take steps to rebuild your credit. If you haven’t held an account individually in several years, you might also have a lower credit score than you will want to have as an independent individual. Take these steps to rebuild your individual credit score.
1. Change your name. You will need to establish your credit as an individual. While changing your name doesn’t erase existing debt, it will help you build your individual credit apart from your ex-spouse.
2. Gain financial independence. The sooner you take steps to regain financial independence by getting a job, paying bills, and other financial necessities, the sooner your credit score will improve. Child support and alimony will both supplement income in a usable way, but you should never rely on these two sources of income completely.
3. Take steps to handle bills you can’t pay. Contact a credit counselor or repair agency to help you work through financial struggle after a divorce. There are a number of different ways to handle debt after a divorce, and a credit counselor can help you determine the best course of action for your situation. Leaving bills you can’t afford unattended will only worsen your credit score over time.
4. Successfully use a credit card. Even if you don’t use it for extravagant expenses, use a credit card occasionally and pay off the bill every month. Using credit cards responsibly is one of the best ways to rebuild credit. The cards should be in your name as an individual, not a jointly held card from your marriage. Sometimes, jointly held accounts that were not responsibly paid off may prevent you from obtaining a credit card. In this case do the following.
A. Make sure the card is closed. As long as a jointly held card is open, it has the ability to affect your credit score.
B. Apply for a secured credit card. If you cannot get a regular credit card, a secured card will be available with a cash or collateral deposit. You’ll only be allowed to use the card for as much of a deposit as you put down at first, but it is a successful method for building credit. It also has the benefit of being a more secure method of payment than a debit card.
5. Keep all card balances low. Ideally, your credit card balance should never rise above 35%. If you need to put a larger expenditure on the card, pay it off multiple times a month rather than waiting until the due date. Doing so will ensure that credit bureaus are not receiving inaccurate information about your accounts during the month.
If you have trouble reconciling your accounts on your own, seek the professional advice of a credit counselor or repair service. In addition to offering you advice, a professional team like ours at Park View Credit will help you review your credit reports and determine if there are any inaccuracies or factors lowering your score that can be contested with the credit reporting bureaus. Often, making a change in your credit report will immediately boost your score. Because divorces are naturally complicated, the help of a professional may be the best option for improving your score.