After a divorce, you may find it more difficult to secure credit that what you experienced during the marriage simply because you no longer have a two-income household. Alternatively, your former spouse might have neglected financial obligations and your credit suffers because of their irresponsibility. The good news is you can take steps to protect your credit for the future. Here are five tips to help establish and take control of your own credit.
#1 Know your credit score and understand when and why it changes.
Your credit score report can be obtained for free (just one per year) through one of three credit bureaus: Equifax, Experian or TransUnion. Your score is determined by your payment history, outstanding balances, history of using credit, the type and mix of credit used, and the number and frequency of inquiries into your credit.
Keep in mind that it’s good to have a credit card or other credit and to use it occasionally to maintain your access to future credit when needed for a car loan or mortgage, for example. If you had joint credit accounts with your spouse, your credit score may or may not need a little boost after the divorce based on the factors mentioned above.
#2 Eliminate obligations where possible.
A credit card or statement with your name on it does not make you a joint owner of the account. Unless the account was originally opened with an application signed by you, you may only be an authorized signer. However, just being an authorized signer can impact your credit, and you should request to have your name removed from the account immediately. If you are the owner of an account on which your former spouse as an authorized signer, have his/her name removed to avoid any future charges.
#3 Close joint accounts or freeze future charges.
Call creditors to close joint accounts that do not have a balance. Your credit score might initially be impacted negatively, but it is temporary, and you will not gain full control of your credit by maintaining joint accounts. If you are in the process of applying for a loan, however, have a candid conversation with your lender about timing to avoid jeopardizing the loan.
If there are joint accounts with balances that cannot be paid right away, call the creditor and request that the account be frozen to avoid any new charges. Incurring additional charges will only delay your ability to pay the balance and ultimately close the account.
#4 Transfer balances to the responsible party’s individual card.
If there are debts your former spouse is responsible for as part of the divorce settlement, request that he/she transfer their share of the balance to another credit card in just his/her name. If they are unable to pay or transfer their share in full, request to receive duplicate copies of all statements to ensure that at least minimum payments are timely, and the account does not go into default. Just one payment made 30 days late can drop your score 25-75 points. While the drop happens quickly, it can take months to add those points back to your score.
#5 Pay your bills on time, no matter what a judge says.
Divorce decrees do not override account agreements with your creditors. Both spouses are liable and responsible for joint debt regardless of who the judge ordered to pay the bill. If an account goes into default status, the creditor may be able to obtain a judgment against both spouses. The judgment becomes part of your credit history and allows the creditor to pursue collection much more aggressively.
If you have trouble maintaining current accounts during or after your divorce, consider debt counseling to better manage your finances and preserve your credit score for the future.