Whether it’s on friendly terms or not, divorce is stressful, and it can even take a considerable toll on your finances. This means you’ll likely hear phrases such as “100% liable for bills” and “child support payments” as well. In this post, we’ll go over how divorce can impact credit scores and how you can repair your credit.
How Divorce Impacts My Credit Score
Your divorce doesn’t directly impact your credit score or credit results, but the financial issues that come afterward can certainly impact it.
Here are some factors that can cause your credit score to decline:
Your Debt Racked After The Split Up Because Your Ex Was An Authorized User On Your Credit Card
This is quite the common thing with non-friendly divorces. If for instance, your ex is being spiteful, they could try to punish you by using your credit card in order to make large purchases in your name or by accessing your bank accounts.
However, since your former spouse is an authorized user, they can do this legally. What’s more, is that they’re not liable for the payment. To be frank, they can spend as much money as they want to without bearing the consequences for it.
Your Joint Accounts Are Unpaid
Married couples usually have joint accounts. Both and your spouse may share a credit card, mortgage, car loan or other forms of debt. The debt doesn’t go away even after separation because you both are still responsible for paying it off.
Paying For Bills Will Be Tough
It’s no secret that life after divorce is a tough one. During that time, you may experience trouble trying to keep up with all the bills you have stocked up as well as paying for living expenses, especially if your ex was the main breadwinner.
As a result, this damages your credit score if there are any late or missed payments. Because your credit history is the most important factor of your credit score, it would be wise of you to make the payments on time, every time.
Using Your Credit Card To Pay For Costs
If you’re using your credit cards to substitute as means of income – or lack thereof – you could likely end up with a lower credit score. You must ensure that your credit utilization ratio is less than 30%.
With that in mind, paying for legal expenses with your credit card could also affect your credit score. Although every divorce comes with fixed costs, like filing fees, other costs may wildly vary. The fees of the lawyer depend on the condition of your case and the degree to which the issues between you and ex can be contested. For example, if you’re dealing with property or custody disputes, the divorce might cost thousands of dollars and sadly, most people don’t have that kind of cash at hand.
Your Credit Limit Has Decreased
Most of the time, creditors can decide to lower your credit card limits. This may happen once the accounts of you and your former spouse have been separated, especially if the creditor discovers that you’re making much less money now.
Fortunately, there are a number of ways for you to protect your credit score after a divorce.
How to Fix Your Credit Upon Separation
You need to be proactive about your credit score, as it’s not necessarily going to be there during your divorce. This way you can protect your money and make it easier to start your new, independent life.
Here’s what you should do to fix your credit score:
- Separate all joint accounts: As soon as you’ve confirmed that you’re getting a divorce, either close your joint accounts or switch them to individual accounts immediately.
- Determine which accounts were shared, according to your credit report: Read each and every line of your credit report for any mishaps and find out which accounts you’re either partially or fully responsible for. It’s actually quite common for spouses to open accounts in their partner’s names.
- If your spouse has access to your account, remove their authorization: If your spouse does indeed have access to a bank account or credit card that is solely in your name, then remove them immediately to protect your finances.
- Change your security information: Improve the security of your credit and debit cards by changing their PIN code, as well as the password on sites and apps that link to your bank account. You can also change the security questions so that your spouse doesn’t easily guess them. And if you have moved, change the address so that your credit reports and bank statements are delivered straight to your new location.
- Change your lifestyle to match your income: Most divorcees – especially those who relied on the income of their spouses – struggle financially to maintain their lifestyles. If this is so, then you may want to cut back on the spending. For instance, you should consider moving into an apartment, get rid of your cable, and also sell your car for a less expensive one. The best way to know what you can and can’t afford is to make a budget. Give greater priority to your most important expenses and try to stay ahead of payments that could directly affect your credit score, like credit cards and loans.
- Work out an agreement about joint debt payments: Try to work out the specifics of joint debt payments, with or without the help of a divorce decree, and then get it in writing.
- Keep a check on your ex’s payment due dates on joint accounts: If your former spouse doesn’t pay on time, you can make the minimum payment on your joint account and save your credit score. Later, you can report the non-payments to the courts and get your money back.
- Boost your income: During your divorce, you should prioritize earning more and spending less. Besides lowering your expenses, you can earn more money by either working overtime or do some freelancing on the side.