What Happens to Your Credit After Divorce?

The biggest single cause of financial difficulty is marriage or relationship breakup. It is also true that the biggest cause of marriage breakup is financial problems. With so much riding on the family’s financial health, it is always best if we can find a way to solve the financial problem before it becomes a marriage problem.

However, when a relationship is beyond repair, separation and divorce become a reality that presents its own financial challenges. While finances are seriously affected during a divorce, divorce and credit problems don’t have to be the rule. By familiarizing yourself with what happens to your money and debt during a divorce, you can take steps to protect your assets and your credit.

What Happens to Your Credit After Divorce

Your divorce itself doesn’t actually impact your credit score because marital status is not indicated on your report. What can affect your credit, however, are the complications that sometimes occur after the breakup. Some of these financial problems include:

• The loss of two incomes. Expenses that were easy to keep up with on two incomes can become difficult to meet when salaries are no longer pooled. It’s tempting to use credit cards to make up the difference, but those payments can easily overwhelm your new, smaller budget.
• Supporting a household on one salary. As a newly single head of household, you become responsible for all of the costs associated with housing and utilities, transportation, food, and education. If the children are in joint custody, both partners will need to have accommodation for them. That adds to housing costs on both sides. If your budget is tight, it’s easy to fall behind with your mortgage payment.
• The vindictive action of spouses. If your spouse raids and empties your joint checking and savings accounts, you may be unable to make payments on your home or other debts. Late and missed payments due to a lack of financial resources also can damage your credit. A malicious spouse can also run up credit card bills that the other spouse will be held responsible for.
• Joint debts that fall behind. Responsibility for joint debts like a mortgage, car loan, or credit cards is often shared by both parties. Both people in the breakup are responsible for the entire debt, and the creditor can collect from either or both until the debt is satisfied. Even if your spouse has agreed to make the payments on a specific joint debt, if they fail to do so, you can be called on to pay. On top of that, the credit history of non-payment will be listed on both names, and your credit rating will be harmed along with that of your ex-partner.
• Legal fees on both sides of a breakup can build up very quickly. Some manage to reduce these costs by working together to come to an agreement and only using a lawyer to put the agreement into effect. Emotions are high, however, and many people simply cannot do this and legal fees escalate.
• Child support and spousal support can cause another stress on the budget, and there is rarely any flexibility in how those are paid, even when the income situation changes for one or both parties.

How to Keep Divorce From Ruining Your Credit

Divorce and credit problems don’t have to go hand in hand. You can take steps to protect your credit rating by following these simple suggestions:

• Keep paying bills on time. Contact your creditors early if you suspect you will have trouble making payments.
• Close joint accounts so one spouse can’t max out credit cards or empty your checking and savings accounts. Consult with a legal professional about who is responsible for outstanding debts and how cash reserves will be allotted.
• Open a credit card in your name to establish a credit history. This is especially important if your spouse provided the main source of your family income. Qualifying for a mortgage or car loan will be much easier if you establish your own credit history.
• Consider selling your house and using the proceeds to pay off joint debts. This strategy can solve other problems as well. If you own a home with your spouse, selling your home will allow you to share the equity you have earned. Also, without a mortgage, you avoid the possibility of a late house payment and the resulting damage to your credit.

The financial challenges that result from divorce and credit problems that sometimes follow can be difficult to cope with. These tips, along with advice from trusted legal and financial professionals, can help you avoid damage to your credit.