One significant collateral consequence of divorce involves credit – how good yours is and how likely you can secure it. Because spouses usually maintain joint bank accounts and credit cards and mortgages, each spouse’s individual credit score will be highly dependent on the other spouse’s activity. Also, the credit you have extended to you depends on a certain annual income that will suddenly shrink upon divorce.
As indicated in this article, credit issues can pose important questions for spouses during divorce.
First, spouses have to decide how to handle the marital residence. If one spouse wants to keep the house, that spouse should determine whether a refinance would be possible. Even if the spouse has a solid income and above average credit, issues in the divorce could have affected the credit score of the individual to make refinancing more risky and hence more difficult. Too many spouses wait until after the divorce becomes final to determine financing qualifications, causing a drastic reordering of post-dissolution life.
Second, who pays what marital debts can impact credit too. The more debt you take on as a result of a property settlement, the more that debt limits your credit – especially if you do not have a long history of paying off debt. It would be wise to consult a financial advisor or credit reporting agency to determine what impact a debt heavy settlement would have on your credit.
Third, if you have not been earning much during the marriage, your credit score could likely decrease because you now find yourself with little income.
Fourth, obtain a credit report for yourself at the very beginning of the divorce – you might be surprised by what you find. Often spouses do not know that the other spouse has made purchases or obtained credit cards in the name of both spouses, creating more marital debt. A credit report helps your attorney in the discovery process track down hidden marital assets and debts.
How can you protect your credit rating?
The best tip we could give would be to maintain individual accounts – both bank and credit cards – before and during the marriage to show responsible spending. Also, if you have not been in the workforce for some time, do not delay getting back to at least some degree and establish an income stream. Credit agencies usually want at least three to six months of income to change your report limits. Finally, after the divorce becomes final, remove your name from any joint account for which you no longer have legal liability and stay on the credit reporting agencies to make these updates.
Building a credit score or saving a credit rating are two challenges too many people neglect during divorce. Be proactive.
If you have questions about your credit score and divorce, contact us – we can help.