Divorce doesn’t directly affect your credit score, because your credit score doesn’t rely on your marital status. However, a divorce can impact your credit score.
Learning how the indirect effects of divorce can bring down your credit score allows you to navigate the waters in advance so you can retain your credit rating and continue to make purchases.
6 ways divorce can impact your credit score.
Your Ex-Spouse Doesn’t Pay Your Joint Bills
If you have any joint credit accounts with your ex-spouse, such as credit cards, car notes or a mortgage, someone has to pay these expenses. If the judge in your divorce case rules that your ex-spouse has to pay certain bills after the divorce, it’s important that you make sure that they do. If your ex-spouse isn’t so worried about his or her credit, then they may not have an incentive to pay unsecured bills or even bills that are secured with assets that belong to you.
Whoever has their name on the account will be responsible for payments of the bills. If they are in both names and don’t get paid, then both parties’ credit scores are at risk of being lowered. The solution is to be on decent speaking terms so you know if the other party is paying their portion of the bills.
If you are not on good terms, the option for you is to pay both parties’ portion of the bills no matter who is responsible for them according to your divorce agreement. You can try to recover the money by reporting your ex-spouse’s nonpayment to the court. You just don’t want it to have a negative effect on your credit score.
Non-Disclosure of Debt
During the divorce process, both parties are required to disclose all of their financial accounts. Some people are not forthcoming about their finances and assets. You can run a credit report for yourself to ensure you are aware of every account that has your name on it. Sometimes a spouse will put your name on an account you are unaware of and then you will also be responsible for payments.
You are Unable to Pay Your Bills
If you went through a messy divorce, you likely have spent a large amount of money on an attorney. If your spouse was the source of primary income in your marriage, you may now have trouble paying the bills by yourself. This can lead to late payments on your part or high credit usage to pay bills with your credit cards. The most important item that makes up your credit score is your payment history and even anything less than perfect on-time payments of even 99 percent may hurt your credit score. If you can’t pay your bills, your credit score will likely decrease.
On the other hand, if you are using your credit cards because of lack of income, then you can be using too much of your credit. Using any balance to limit ratio over 30 percent can decrease your score and limit your financial options for the future.
You can free up more cash to put toward your bills by increasing your income or decreasing your spending. The best scenario is to do both simultaneously. To earn more money, you can seek a higher paying job or work overtime, take a second part-time job or freelance in your spare time. You can cut spending by cutting back on cable fees or subscription costs and limit your personal care and restaurant spending. Do you really need a $5 cup of Starbucks each day? You get to decide which areas you are most willing to give up discretionary spending.
A Vindictive Ex-Spouse
Many marriages end on a sour note and a spouse can be vindictive. If there is a lot of drama and your ex-spouse is angry and has access to your credit accounts, they may decide to use your accounts and rack up phenomenal debt in your name. This is common when you get a credit account in your name only, based on your credit rating and allow your spouse to be an authorized user of the account. If this happens, you may not be able to pay the bills for your credit accounts or credit cards and it can severely hurt your credit score.
The best solution to this predicament is to remove each other from all individual credit cards or credit accounts as soon as possible–even better if you are able to do this before the divorce is finalized.
Decreased Credit Limits
Many creditors and lenders will check on their clients at regular intervals to see if they have a change in their income level. Most credit card agreements have a statement that your credit limits can be decreased at their discretion. If one spouse made a significantly more amount of money and the credit accounts are separated, a creditor can choose to low the credit limit for one or both parties. This can affect your credit score and your ability to get more credit.
Refinancing the Home
In order to get the marital home into one ex-spouse’s name, most lenders will require that your mortgage is refinanced using only the one spouse’s credit. This can put a great strain on the spouse that is awarded the home if they can’t make the payments easily and it can potentially add a lot of debt for them too.
The best idea is to try to be amicable with your ex-spouse. Let’s face it; sometimes a household bill will go unpaid as an oversight during the divorce proceedings. Each party should communicate with each other over the shared financial responsibilities in order to work together and ensure that everyone’s credit remains in good standing.