While you spend a great deal of time worrying about what marital property to claim, you may find yourself losing something else – your credit rating.
Divorce for many couples creates a financial meltdown, sometimes because they are too strapped for funds to pay for two households, sometimes because one spouse tries to sneak away with marital property. When the meltdown happens, bills start to go unpaid, often to the point that debt collectors get involved and threaten to report the matter to the credit reporting agencies like Experian.
Credit ratings matter. Some people think that we live in a time when anyone can get a credit card in ten minutes over the Internet or by walking in a store. But while some people get that treatment, many others do not. When you go to apply for a credit card, a store will use your basic data – address, phone number, date of birth, social security number – to run a detailed credit check. Reporting agencies track all of this data, and all unpaid debts or risky debtors will be flagged, and if you get flagged, you get no credit. These issues extend beyond getting a credit card – it can prevent you from renting a new apartment or refinancing the marital home.
So how can you protect yourself?
First, before the divorce starts, get a credit card in your own name. Even when married, it is a good idea to have at least one card in your own name to build your own credit rating over time, showing you can make purchases and pay on time.
Second, run a credit check on yourself. This will help identify any strange issues in your credit history, especially surprises – like your spouse taking out new cards in your name or running up unpaid debt on a joint account you started years ago early in your marriage. Anticipating a divorce, spouses have been known to take cash advances on credit cards that are jointly held to pay for expenses or attorney fees. The obvious problem in doing so is that if that spouse defaults on the debt, you will be on the hook for the credit rating drop just as much as the spouse.
Third, after you have identified all strange accounts or worrisome purchases, work with your lawyer to keep these payments up to date and to ultimately consolidate debt to each party on separate cards, and closing all remaining joint credit cards.
Fourth, be smart about your purchases during and after divorce. Build credit by buying what you know you can pay off given your income. The more charges you make and pay, the higher your credit rating will soar.
Finally, be careful. Never think you are always at a safe and great spot. Check your credit regularly and consider signing up for credit alerts.
If you have questions about guarding credit during and after divorce, contact us – we can help.