Regardless of how amicable your divorce, it can be a stressful time. For some people a divorce is a relief and for others it is a tragedy. No matter how you feel about it, you will inevitably have a lot on your plate while getting through it. There are the legal issues, financial negotiations, court hearings, forms to fill out, possibly even custody battles, none of which are in the least bit enjoyable. Then, to top it all off, there is the impact it will have on your future.
One of those areas that a divorce can impact is your credit, and your credit score. It isn’t enough to just look at the overall financial situation that a divorce may bring but rather there are a few other important areas that could seriously impact your credit and your financial future. Here are four major ways that a divorce can damage your credit score:
1 – Joint Bills & Co-Signed Loans
Splitting up assets and possessions may be at the forefront of your mind while dealing with a divorce but most married couples also share at least one, if not several, co-signed loans. Mortgages, car loans, credit cards, and the like require regular payments. Once you’ve separated, those payments will still need to be made.
A common issue here is when one party takes ownership of the asset, such as a vehicle, but stops making payments on the loan while your name is still attached. This will not only affect their credit but yours as well. If possible, you should untangle any accounts that you share with your former spouse or keep a close eye on them. If you’re unable to remove your name from the account, then you will still be held responsible if they neglect to make payments on time. Late payments can quickly lower your credit score and delinquent accounts more so.
2 – Creating a New Budget
There are many aspects of a divorce that circle back to finances. After the divorce it is important to hash out your finances to create a new budget. If you take over certain loan payments, make less money than your former spouse or are required to make alimony payments, you will need to re-establish your monthly budget and financials. This will help ensure that you are still able to make all of credit or loan payments on time.
A divorce also comes with its own slew of costs – lawyer and court fees, and assets that you split – and it could drain any rainy-day funds that you may have set aside. Make sure that you work out a new budget that will allow you to replenish your savings in order to avoid financial problems down the road that could damage your credit.
3 – Shared Accounts
A typically more sensitive subject is shared or joint bank or credit accounts. Despite any trust that you may have in your former spouse, you should definitely consider removing them as an authorized user on any accounts that you own. Especially with credit or loan accounts, a vindictive ex-spouse could cause serious damage to your credit.
It would be wise to change bank account passwords and the passwords on any accounts that allow someone to order or purchase something using your stored billing information.
4 – Ex-Spouse Files Bankruptcy
Another way a divorce could seriously impact your credit score is if your ex-spouse files for bankruptcy. Even long after your divorce is finalized, if your ex-spouse has any loans or lines of credit that still have your name on them when they file for bankruptcy, it could have a negative impact on your credit score.
To avoid having this affect your credit, make sure that your name is no longer on any loans, mortgages or lines of credit if possible. It is also helpful to check your credit report on a regular basis following a divorce to watch for any potential problems or errors.
If your credit score has already been impacted by a recent divorce or you need assistance in increasing your credit score, contact Credit Absolute today for a free consultation.