Getting divorced is an emotionally turbulent time. You’re thinking about court cases, where to live, child custody, and other things. Your credit score probably isn’t top of mind. But it should be.
Divorce can wreak havoc on your finances if you’re not careful. Missed payments, maxed-out cards, and debts in collections will trash your credit faster than you can say “irreconcilable differences.”
There are things you can do to keep your credit safe during a divorce, though. Here’s what you need to know.
How Divorce Affects Your Credit Score
Divorce itself won’t show up on your credit report. But the financial changes that come with dissolving a marriage can impact your credit in several ways:
1. Loss of Combined Income
Going from two incomes to one means you have less money coming in each month. This makes it harder to keep up with bills and credit payments. Falling behind will hurt your credit utilization and payment history – two major factors in your score.
2. Closed Joint Accounts
After a divorce, it’s common to close joint credit cards and loans. This can lower your total available credit and raise your credit utilization ratio. It also ends an active line of credit that you’ve used to show that you have a healthy credit mix.
3. Debt Division
Divvying up debt is messy. One partner might take on too much by themselves. Defaulting on payments tanks your credit quickly. Or, your ex could stop paying, leaving you to pay the whole amount.
4. Authorized User Status
If you were only an authorized user on your former spouse’s credit card, you’ll lose that account history when the divorce is finalized. This can shorten your credit history and lower your score.
5. Fraud Risk
Joint accounts left open create fraud risk. Your ex could miss payments, max out balances, or open new accounts in both your names. Regularly monitor your credit report while finalizing the divorce.
6. New Credit Applications
After divorce, you may need to apply for new credit in your own name. Too many new applications in a short period will result in hard credit inquiries. This can knock a few points off your score temporarily.
How to Protect Your Credit Through Divorce
The financial impacts of divorce can be managed when you take proactive steps to protect your credit:
Pay off and close joint accounts ASAP. Eliminate fraud risk and separation stress. If you can’t pay it off, ask the lender to remove your ex from the account so it’s solely in your name.
Don’t close your oldest credit card. When closing joint accounts, keep your longest-standing card open because credit history length is important.
Lower credit utilization. Keep balances low across all cards to maintain a healthy ratio. Don’t max out cards just because you have less total credit.
Split up debts fairly. Agree on who pays what to avoid situations where one ex struggles with payments. Get it in writing!
Build individual credit history. Open new credit cards and loans in your name only. Make on-time payments to build positive records.
Monitor your reports. Review your credit reports from all three bureaus. Dispute any errors. Check for fraudulent activity.
Prioritize payments. If money is tight, pay secured debts like car loans first. Pay the minimum on cards to avoid late fees and hits to your credit utilization.
Rebuilding Credit After Divorce
If your credit does take a hit after your divorce, here are some tips for bouncing back:
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Pay down balances. Reducing credit card balances will quickly improve your utilization ratio.
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Call creditors. Request rate reductions. Ask about hardship programs if you’re struggling to make payments.
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Add yourself as an authorized user. Piggyback off the good credit of a friend or family member to rebuild a credit history.
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Limit hard inquiries. Only apply for credit when absolutely necessary for the next 6-12 months. Too many inquiries at once hurts your score.
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Focus on on-time payments. Set up autopay and account alerts. Being late can severely damage your credit, so pay at least the minimum by the due date.
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Avoid account closures. Keep old accounts open, especially your oldest credit card. The length of credit history and average age of accounts are big factors in your score.
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Dispute errors. Comb through your credit reports and have mistakes corrected by the credit bureaus. This alone can give your score a nice boost.
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Wait it out. Negative marks like late payments eventually fall off your credit report. Old missed payments hurt you less and less over time.
The Bottom Line
Divorce can negatively impact your credit – but it doesn’t have to ruin it. Monitor your credit, keep accounts current, split up debts evenly, pay down balances, and take steps to start rebuilding credit in your name only. With some discipline and diligence, your credit score can recover fully post-divorce.
Shared accounts after divorce
If you kept your finances entirely separate during your marriage, your individual lines of credit will remain separate when you divorce, making it relatively simple to detach your financial lives from one another. However, most couples jointly hold one or more financial accounts, such as a shared credit card or a mortgage. If youre in that majority, your situation may add a layer of complexity when you decide to divorce.
Your divorce decree may dictate who maintains ownership of which accounts following your separation. However, even if your mortgage or another type of a credit account is assigned to your ex, that doesnt mean youre automatically off the hook. Your name will stay on all joint accounts after divorce until you take steps to remove it. Therefore, youll still have at least partial responsibility for those accounts.
For example, if your ex is making late payments on a shared credit card and your name is still on the account, you have a legal responsibility to make sure those payments are made on time. Even if your ex made all of the charges, your credit scores will likely suffer from a late payment because your name is attached to the account. Its the same scenario if you cosigned a loan together or if you simply became an authorized user on your former spouses credit cards. As long as your name and Social Security number are still associated with those accounts, any late payments by your ex can drag down your credit scores.
The good news is that you may be able to convert some of these accounts from joint to individual status. Once the conversion is complete, your credit history will no longer be tied to your spouses financial actions—positive or negative. Talk to your creditors to see what options are available to you.
However, if you do separate your accounts, be prepared for your credit limits to potentially decrease. When you remove an individual from an account, youre also removing their income and credit history, so your creditor may adjust your credit limits accordingly.
If your credit limits are lowered, your credit scores may suffer as well. This is because you are likely altering your debt-to-credit ratio (the amount of debt you carry compared to the total credit available to you). A lower debt-to-credit ratio tends to be better for credit scores. If you currently carry a high balance on one particular card, it may be a good idea to reduce that debt (or pay it off entirely, if possible) before you remove your ex (and their income) from existing accounts.
If you or your spouse has debt, you may be wondering what happens after divorce to the money you owe jointly or individually. The answer largely depends on what state you live in.
If you live in whats known as a community property state (Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico and Wisconsin), you may be on the hook for debt incurred during marriage, even if it was acquired by your spouse on an individual account. Learn more about community property states and how this may impact you financially during a divorce from IRS Publication 555.
If you instead live in a common law property state (which includes most of the country), you are likely only responsible for debt incurred on shared accounts.
Regardless of your location, youll want to check with your divorce attorney to understand your unique circumstances and determine what debt you have to repay once your divorce is finalized.
How Does Divorce Affect Your Credit Score? | THE PALMER LAW FIRM
FAQ
How badly does a divorce hurt your credit?
Going from being married to being single or divorced has no effect on your credit report because it doesn’t say on the report. Mar 18, 2020.
What are the financial consequences of divorce?
With divorce often comes a change in housing arrangements. One or both spouses may need to find new accommodations, which can lead to increased living expenses. Mortgage payments, rent, and utility costs may become challenging to manage independently, necessitating budget adjustments.
Does divorce show up on a credit report?
Highlights: Filing for divorce and divorce proceedings will not impact credit reports or credit scores. Understand your divorce decree. If joint credit accounts are not paid as agreed, your credit reports and credit scores may be impacted.
Why do people have bad credit after divorce?
It doesn’t matter if your ex paid for everything; a late payment will still hurt your credit score because your name is on the account. It doesn’t matter if you cosigned a loan or just added yourself as an authorized user to your ex-spouse’s credit cards.