Guest Post by Mark Daniels
Getting a divorce is a personal choice and has no direct impact on your credit score, as marital status is not included in a credit report. However, the impact can be substantial in indirect ways.
For example, the mental stress of a divorce may lead to missed loan repayments, which will adversely affect your credit score. You may also have an arrangement with your ex-spouse to make repayments on joint loans, and there is no guarantee that he or she will make the payments regularly.
Joint accounts appear on credit reports
Every person named in a joint account is responsible for its maintenance. Upon divorce, it is advisable to close such accounts or remove one name.
While a divorce decree states who is responsible for the accounts opened by the couple during marriage, it doesn’t automatically contact lenders or change contracts. This can lead to confusion for the divorcing spouses.
If the person held responsible for payment as stated in the divorce decree can’t or won’t pay, the late payments will appear on credit reports of both persons and will negatively affect the credit scores for both individuals, requiring you to perform credit repair
. As the missed payments can occur years after divorcing, the effect could only become apparent years later. Hence, it is almost mandatory to deal with the accounts properly.
A spouse may also intentionally hurt the other’s credit score by avoiding the payments as a perceived punishment. He or she may not realize that by doing so, his or her own credit history will also be damaged.
These issues can largely be prevented by maintaining a civil relationship during the divorce proceedings. Both spouses can work together to pay off loans together and close accounts. If they do not agree, the joint accounts can be converted to individual accounts that will be simpler to handle. Contacting the creditor can also be helpful, as they may suggest other options. When both parties agree on the finer details, the divorce can be less painful and less damaging to their credit scores.
Dealing with joint accounts during and after divorce
A divorce often leads to financial troubles for one or both parties as it involves losing one of the incomes. Financial strain can result in irregular bill and home or auto loan payments, causing a credit score to drop. Sometimes, a spouse may deliberately hurt the other by withholding payments, even though the judge has named them responsible for the payments.
Protecting credit after a divorce
The two most important factors affecting credit scores are payment history and level of debt. To maintain a high credit score during and after divorce proceedings these should be taken into account.
One way to achieve this is to alter the lifestyle that one was used to when there was double income. This may mean drastic changes like selling a vehicle or house and buying a less expensive one or avoiding extra expenditures by reducing purchases and bills. One should minimize debt and maintain a positive payment history to prevent one’s credit score from dropping.
A properly thought out plan for spending can definitely help. Making a budget can identify what is affordable and what isn’t. Payments that directly affect one’s credit score should be identified and must be made on a priority basis.
Aim to manage primary expenses out of your own income, rather than relying on alimony or child support. Some ex-spouses may act vindictively and skip payments, try to reduce the amount, or even leave their job to trouble their ex-partner. Even if the court-ordered payments stop, you should not suffer.
Divorce and credit
The following steps are recommended when seeking a divorce to protect your creditworthiness:
- Close or separate joint accounts. This will necessitate a dialogue with the ex-partner.
- Take stock of all properties.
- Refinance the home to get one name off the mortgage or sell the home and divide the proceeds.
- Regularly pay all bills.
If it is necessary to go through a divorce, one should be ready to bear the emotional trauma that it can bring. At the same time, one must be level-headed and reduce the adverse impact on one’s credit score and on other financial matters by ensuring the payment of all joint bills, stretching the budget to ensure timely payment of personal bills, and removing the name of an ex-spouse from accounts wherever possible. Maintaining a civil relationship with your spouse during and after the divorce will help in protecting your credit score
Mark Daniels with Credit Law Center is a versatile writer with extensive experience creating interesting, engaging, and unique articles in multiple industries.