Does Getting a Divorce Affect Your Credit?
By Caitlin Wood
It goes without saying that divorce can be emotionally taxing on all parties involved, including children. But it can also be financially draining. From paying legal fees to splitting up assets, a divorce can have a significant impact on your financial life.
But what about your credit health? Your credit score plays a key role in your financial profile and your ability to secure loans and other credit products, so the last thing you want is for it to take a hit.
Does Divorce Affect Your Credit?
Divorce itself does not impact your credit score directly. Your credit report doesn’t specify what your marital status is, so being divorced isn’t the issue when it comes to your credit score.
But your score — and that of your ex-spouse — could be affected indirectly when assets and credit accounts are involved.
How Can Divorce Affect Your Credit?
There are several ways that divorce can indirectly impact your credit score, including the following.
Responsibility For Joint Accounts
If you and your ex-spouse shared a joint account while you were married, you’ll still be tied to the account after a divorce. That means your creditors will still expect the account to be maintained.
And if your name remains on the account, any missed payments will be reported to the credit bureaus. This could have a negative effect on your credit score.
Lower Credit Limits
If you were approved for a credit card limit based on your household income and not just your individual income, once you are divorced your card provider may reduce your limit. This can instantly spike your credit utilization ratio, which is a key factor in the calculation of credit scores.
Ideally, your credit utilization ratio — which measures how much credit you use relative to your credit limit — should be no more than about 30%. If your current balance stays as is but your credit limit drops, your credit utilization ratio could jump, which could put a dent in your credit score.
Child Support Payments
If you have kids and are responsible for making child support payments, you’ll want to make sure you keep up with these bills. Like any other financial obligation, failure to make your child support payments can negatively affect your credit. If you’re behind on these bills, your credit report will be noted accordingly.
Does Getting a Divorce Void a Loan Contract?
Getting a divorce doesn’t alleviate your current loan obligations. While a divorce details who is responsible for an account that was opened during a marriage, it won’t void the contract with a lender. The court will ultimately determine who will have to pay the debt.
Unfortunately, one spouse could be on the hook for missed payments by the other spouse who is responsible under the divorce decree to pay down the debt. The missed payments will be noted on both credit reports, which means both spouses’ credit scores could suffer. In some cases, ex-spouses may find out about their obligation to make good on a loan years after the divorce.
How To Protect Your Credit Score When Going Through a Divorce
As you can see, your credit score can be at risk when you divorce if you’re not careful. To protect your credit score, consider taking the following steps.
Check Your Credit Report Regularly
It’s always a good idea to review your credit report on occasion, especially after a divorce. Reviewing your credit report will give you the chance to spot any potential inaccuracies or issues that could be unfairly affecting your credit.
If your ex-spouse is vindictive or not very good with finances, you could be at risk if you shared any joint accounts that you’re still responsible for. Rather than wait until a huge amount of debt has been racked up as a result of failed payments, you can spot any issues right away and deal with them accordingly.
Keep an Eye on Payments
If your ex-spouse is responsible for making payments on accounts that are under your name, be sure to keep tabs on the payment due dates. Once the due date approaches, make sure payment has been made.
If not, you may want to make a minimum payment to protect your credit score. This will ensure that the payment is not considered late, without you making full payment yourself. Then, request to have your ex-spouse repay you for what you paid through the courts.
Close Any Joint Accounts
The sooner you can close out any joint accounts, the better. Ideally, this should be done before divorce proceedings begin, as it can help simplify the handlings of your joint finances. Plus, it will alleviate you of any payment obligations if your ex-spouse is responsible for paying the bills but neglects to do so.
Make a list of all joint accounts and close them right away. If possible, get the closing in writing, and ask the lender not to allow these accounts to be re-opened.
Open Your Own Bank Account
If you only had a joint account when you were married, you’ll need to open one in your own name when you divorce and have your joint accounts shut down. With just your name on the account, you’ll be solely responsible for maintaining it.
Your credit score is one component of your overall financial health, so you’ll want to do what’s best to keep it in good shape. Unfortunately, a divorce can leave your credit score vulnerable, though the actual act of divorcing won’t necessarily bring your score down. Always make sure you’re aware of any joint accounts you have, and take steps to ensure they’re in good standing or have them closed out entirely.