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Divorce is a major change that can affect many areas of your life, including your financial habits and obligations. While there are many important decisions you will need to make during this process, it’s a good idea to keep a close eye on your credit score as well.
Of course, it’s always important to monitor your credit score, regardless of your marital status, but 42% of men and 54% of women say their credit score has gone down after divorce. However, getting a divorce does not inherently lower your score, but changes in your financial obligations could.
Below, Select details the different ways a divorce can impact your credit score and how you can protect yourself against a potential drop.
How Divorce Can Affect Your Credit Score
Missing payments on the common debt
The divorce process can be emotionally demanding. As a result, it can be easy to forget to pay your credit card bill or your car loan payment. But there’s an even bigger reason why you might be likely to accidentally miss a payment on a debt you and your partner had together.
“Couples get joint credit cards, a mortgage, a car loan, and other joint debt,” said Jim Droske, president of Illinois Credit Services. “In a marriage settlement agreement, a judge decides who will be responsible for certain debt payments. it’s still part of your credit history.
Droske explains that people tend to think that they no longer need to pay off some joint debts because a judge has assigned the responsibility to their spouse. But if the debt is still on your credit report and your spouse is missing a payment, it can still affect your credit score.
For this reason, it is important to always be aware of what is on your credit report. You can use a free service like Experian to view your credit report and credit score whether or not you are going through a divorce. This will help you determine which loans and credit cards are in your name and where a potential missing and / or late payment could arise.
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Once you know what’s on your credit report, it’s a good idea to at least make the minimum payments on time.
“A lot of people get mean during a divorce and don’t want to pay for the financial obligations they had with their partner,” Droske said. “If you know what’s on your credit report, no matter what, make sure the minimum payments are made otherwise you’re putting your credit at risk.”
Closure of joint credit cards
Closing a credit card can impact your credit utilization rate, regardless of your marital status. When you close a card, you reduce the total amount of available credit you have.
So let’s say you have two credit cards with a limit of $ 10,000 each, which gives you total available credit of $ 20,000. If you spend $ 5,000 on a single card, you are only using 25% of your total credit. Corn if you close a card, your total available credit will be reduced to $ 10,000. Even if you haven’t spent more money, your usage is now 50%, and higher usage can lower your credit score.
When it comes to divorce, couples usually don’t want to keep joint credit cards once they’re separated. So keep in mind that closing a joint credit card can lower your credit score because your credit usage can be affected.
Brett Holzhauer, a reporter for Team Select, was able to maintain his impact-free credit rating after his divorce because the majority of credit cards were in his name. However, he notes that if you cancel cards between you and your partner and your score drops, starting with healthy credit gives you more flexibility to take that shot.
Be deleted as an authorized user on your partner’s credit card (s)
An authorized user is an additional cardholder on someone else’s credit card account. Even if you don’t have to make payments on your partner’s credit card bill, being an authorized user on their credit card can improve your credit score if they spend responsibly and make payments. consistent and on time. This can be particularly beneficial for a spouse who has never had accounts opened on their credit report.
However, if you are deleted as an authorized user on your spouse’s credit card (s), your credit usage may be affected and you may experience a decrease in your credit score.
How to prepare financially for a divorce
Understand exactly what’s on your credit report
Whether you’re married or not, knowing what’s on your credit report will help you understand which debts are impacting your credit score. But it’s especially important to keep an eye on your credit report when you’re going through a divorce so you know what debts you both are responsible for and which cards need to be canceled.
“Once a deal is made on who will pay what, people tend to think that they are off the hook if the other person is responsible for paying the debt,” Droske said. “But a late or missed payment will have an impact on your credit and that of your spouse.” People think they can just call the creditor and say that they are no longer responsible for the payments because they are getting a divorce, but it does. doesn’t work that way. “
It also helps monitor your credit for any new credit accounts or loans that you don’t remember opening on your own. New, unknown accounts on your credit report can be a sign that someone is using your name to get a new line of credit. Experian can also help you monitor your credit, but our roundup of some of the best credit monitoring services may offer other options.
Consider the possibility of keeping your accounts as separate as possible once married
“It doesn’t work for all couples, but forcing you to have your own separate accounts can make things cleaner in the event of a divorce,” Droske said. This way, you won’t have to worry about a partner not making a payment to a card in your name.
Of course, some financial obligations can be more difficult (if not impossible) to separate, such as a mortgage payment on a house (here’s how a person handled buying their home after a divorce). You can also consider a marriage contract (or a postnup if you are already married) so that you can plan the distribution of obligations and assets in the event of a divorce. But if you and your partner prefer to combine all of your finances, here are three important recommendations from a family wealth advisor that you may want to consider.
Freeze your credit
A credit freeze allows you to restrict access to your credit report without affecting your credit score. Since lenders require a credit check before approving you for new loans and lines of credit, neither you (nor a malicious ex-spouse) will be able to acquire new debt in your name until your credit is over. thawed.
“Some situations get unpleasant and there are circumstances where a spouse opens an account without your knowing it,” Droske explained. “This is why you need to check your credit report and consider freezing your credit so that you have more control and people cannot open new debt on your behalf.”
At the end of the line
From an emotional standpoint, there are a lot of things that can happen in a divorce. But sometimes the process can seem even more obscure when it comes to the financial effects and the potential impact on your credit score. The act of divorce does not affect your credit score, but changes in your financial obligations (or those of your ex-partner) following a divorce could.
One of the best ways to prepare is to monitor your credit score so you know exactly what is on your report (and, therefore, what lenders say you are financially responsible for). Be aware of the potential for missed debt payments and changes in your credit utilization rate after a divorce. And if you want to take an extra precautionary step, you may want to consider freezing your credit for a period of time.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.