Will Divorce Affect My Credit?
Going through a divorce can be one of the most traumatic and emotional processes you can experience in life. Not only does a divorce result in feelings of regret, loss and failure that both the spouses undergo, there can be financial problems as well. So, you ask, “will divorce affect my credit,” and the answer is not as straight forward and it depends on some factors.
The financial issues can be compounded by the number of years you have been together with your spouse, the value of the assets acquired by you in this period and whether you have children or not.
Divorce by itself does not affect your credit and you need not go through the angst that your credit scores will plummet the minute you file for a divorce. Divorce directly does not show up on your credit reports and your marital status does not account for your credit scores.
While the aspects of divorce such as legal fees, the division of assets, alimony and child support can mess up with your finances, none of these factors directly affect your credit score.
However, there are other factors which occur during the course of getting a divorce that can impact your credit negatively.
Refinancing Your Home
If you plan to move any property you and your spouse jointly own into any one of your names, then you may need to refinance the mortgage. Just like any other refinancing situation, this will need a credit inquiry and will also add a lot of new debt to you or your spouse. Read our guide on Who Gets What in a divorce to get a better idea about property division.
Debts Split Unevenly
During a divorce, if the assets are divided between you and your spouse, one of you may take more of the assets, property and income and also the debt. This essentially depends on the way the debt is divided.
Moving to a Single Income
It is a good idea to examine the finances of both parties before the divorce and chalk out new budgets for both so that you prevent falling behind on payments and bills. Many people who are divorced claim that losing their spouse’s income has impacted them financially. And, planning ahead and setting a new budget very early before the divorce can help to prevent this situation.
Not Disclosing All the Debts during Divorce Proceedings
During the process of divorce, both you and your spouse must disclose their financial accounts. However, many times, spouses discover that their partner has not been completely truthful about their assets and financials. The best way to ensure that you are aware of each and every account that bears your name is by running a credit report.
One of the Spouses Has Access to the Other’s Accounts
In the case that the joint accounts of you and your spouse are not split, both of you will be responsible for any additional charges. So, in the case of a divorce, it is best to split all joint accounts that you hold with your spouse as soon as possible.
One Party Does Not Pay His/Her Share
Courts are agreeable to working with couples going through a divorce in helping them discuss their shared assets and arrive at a payment plan such as any jointly-owned property, a home, etc.
Decreased Credit Limits
Several creditors check up on the clients periodically to check if there has been any change in the salary, and most of the credit card agreements state that the credit limits can be changed, increased or decreased at the discretion of the creditor. If your spouse has been earning more money than you and your accounts have been separated, then the credit company can decide to lower either your or your spouse’s limit or both, which in turn, can affect the credit scores and also push you to the maximum limit very fast.
If the Divorce Turns Messy
It is a given that divorce is not really an enjoyable situation and the best idea is to try and remain civil to your spouse. This can help to lower the risk of your spouse trying to harm you financially out of spite or vice versa.
Confusion Over the Decree
Couples can be confused about their financial responsibilities as indicated by the divorce decree. If you are not sure about your financial obligations and what you need to pay, then it is a good idea to consult your attorney, mediator or family court facilitator and get clarity.
Spouses Do Not Work Together
Losing one of the household incomes due to the divorce can place a lot of financial strain and may lead to missed payments on bills, loans, credit cards, etc. And,
since payment history has a major bearing on the credit score, missing any payment can cause a drop in your credit score.
Divorce can hurt your credit score if the payments of accounts held jointly with your spouse are not paid. Sometimes, the judge may declare one of the spouses responsible for the payment of a joint debt. If the spouse responsible fails to make the payment, the creditor adds a late payment to the credit reports of both parties.
And, despite whatever is mentioned in the divorce agreement, the loan or credit card agreement stands and any missed payments will affect all the people mentioned in the agreement. And sometimes, your spouse may hurt your credit intentionally out of spite.
So, keeping the divorce proceedings amicable can help the communications between both parties to be open over the shared financial responsibilities even after the households have been separated completely. Also, working together can help to ensure that your and your spouse’s credit scores remain good.
So, if you are going through a divorce, you must work on all the aspects of your finances in order to minimize the negative impact of your divorce on your credit. Ensure that all the bills that you jointly pay with your spouse are paid in a timely manner. Try and stretch your budget so that you are able to pay all your personal bills on time and make sure to remove your spouse from all the accounts you hold jointly.
Finally, the most important thing is to maintain a civil post-divorce relationship with your spouse, so that your ex-spouse is less likely to try and trash your credit that way.