It’s Divorce Season: Here’s How to Keep Good Credit While Splitting

No one ever said divorce would be easy, especially when it comes to your finances. But if you’re contemplating a break, have hired an attorney or have just been served papers, managing your credit should be of utmost importance to you. Your finances, like your personal situation, are going to change, and you’ll need to protect them to secure your financial future.

New research from two University of Washington sociologists shows that divorce-filing rates peak in August, right after summer vacations. Their research was based on analysis of divorce filings in Washington state between 2001 and 2015. To help you get through this uncertain time, we reached out for some advice to John C. Heath, a credit expert and consumer attorney for Lexington Law, which is affiliated with Credit.com. Here are some of the things he said to keep in mind credit-wise as your case wends its way through divorce court.

1. Pull Your Credit Reports

“You’ll want to pull your credit reports and take a look at what’s on them,” says Heath, because there’s a chance you may have joint credit accounts with your soon-to-be ex-spouse that you aren’t aware of, or worse, you’ve been put on accounts without your spouse telling you. If either of those are the case, you’ll want to make sure to address it, whether that means putting the account on ice until things are settled, deciding on who will take what responsibility or having your ex-spouse or yourself removed from the account.

You’ll also want to check your report for any errors, as these can sometimes lower your score, making it hard to secure new lines of credit. (You can learn more about disputing errors on your credit report here and view a summary of your credit report, updated monthly, for free on Credit.com.)

2. Avoid Taking Out New Lines of Credit

“One other thing you won’t want to do is take out any additional credit,” Heath says, because it may wind up affecting your soon-to-be ex-spouse’s credit file. For instance, if you’ve co-signed on a loan for your spouse and decide to apply for a travel rewards card, you could overextend your finances, making it harder to pay for the loan. If you fall behind on payments, or worse still, default, this could impact your spouse’s credit. Taking on more debt than you can handle could also exacerbate an already tense situation where you’re juggling attorneys’ bills with daily expenses.

3. Draft a Budget

Tough as it is, accepting and adjusting to your new financial reality is a must if you want to move forward, says Heath. “You’re going to be entering a time where, if you had a joint account, that money is no longer available to you,” he says.

Your situation may change in other ways as well. For this reason, it’s important to have your own funds set aside, so you can pay bills on time, and in full, without worrying. With things at home changing, you’ll also want to make sure you’re able to afford what you need to get by, be it a car, a home, student loans or anything else.

With your credit in solid shape, you’ll be able to finance an auto loan, a mortgage or whatever other type of loan is necessary for starting your new life.

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Does Getting a Divorce Hurt Your Credit?

divorce-hurt-your-credit

Getting divorced can come with plenty of heartache, paperwork, and even financial burdens. But one of those struggles does not include a dip in your credit score just because you signed divorce papers.

“The act of getting a divorce does not have a direct impact on your credit,” Bruce McClary, vice president of communications for the National Foundation for Credit Counseling, said in an email.

But that doesn’t mean getting divorced can’t affect your credit in some way.

“The more shared debt there is in a marriage, the greater the potential for some problems to arise if the relationship ends in a divorce,” McClary said.

So, the legal act of getting a divorce may not directly affect your credit, but what comes after may cause your credit to take a hit, depending on how your shared finances are dealt with.

What’s in Your Divorce Decree?

When a couple separates, the court will divide the financial responsibilities (including debts) in a divorce decree.

“Should the court rule that one party is responsible for repayment of the debt, it may not resolve all of the issues that could cause collateral damage on the other person’s credit report,” McClary said. “The divorce decree will not alter the original loan or credit card agreement, so any missed payments will hurt both people equally.”

And this can go beyond credit card debt.

“If you are ordered to pay child support and fail to do so, a judgment could be entered against you listing the amount you owe,” John C. Heath, credit expert and attorney with Lexington Law, a Credit.com partner, said in an email. “These obligations can be reported on your credit report.”

It’s also important to note that separating shared accounts is not part of a divorce decree — this is your responsibility.

“A joint credit card agreement only recognizes an equal responsibility to repay an entire balance,” McClary said. “Such a contract does not determine how the responsibility is divided proportionally based on how much each person is charging. That is a matter to be decided between the two people who share the account.”

Managing Your Finances Post-Divorce

“You need to pay your financial obligations in a timely manner,” Heath said. “If you have joint obligations with your partner, you will want to make sure these are paid in a timely manner too.”

McClary said it helps to give each account holder “identical copies of all original loan documents and cardholder agreements” so everyone starts out on the same page.

“Monitor your account activity regularly and keep the lines of communication open,” McClary said. “The more transparency there is between account holders, the easier it is to avoid trouble before it becomes serious enough to cause credit damage.”

And Heath warned against taking your stress out on your credit cards.

“You do not want to let your credit accounts get away from you,” Heath said. “Divorce can be a very emotional process and some turn to ‘retail therapy’ to feel better.”

What to Do if Your Ex Doesn’t Do Their Part

“Be prepared to use emergency savings to maintain shared debt payments if the other person stops contributing their portion,” McClary advised.

And, if they don’t start paying what they’re supposed to, you aren’t entirely stuck.

“The only recourse [to missed payments] is that the person determined to be responsible for repayment by the court can be sued by the other if they fail to pay as agreed,” McClary said.

McClary also said it’s important to remember that this “can be a lengthy process that may not resolve all of the issues, especially the initial drop in the credit score and any resulting collateral damage.”

Monitoring Your Credit

McClary recommended informing the three major credit reporting agencies of your divorce and the debt repayment plans put into place. He said, “the more they know beforehand, the more they may be able to help find ways to help avoid financial pitfalls related to the divorce.”

In addition to this, it’s also important to keep an eye on your credit throughout the process. To do this, you can get your free annual credit reports from AnnualCreditReport.com as well as see two of your credit scores for free, updated monthly, on Credit.com.

If your credit does take a hit as a result of a divorce, you may still be able to improve your credit scores by disputing any errors on your credit reports, paying down high credit card balances and limiting new credit inquiries.

[Offer: If you need help fixing errors on your credit report, Lexington Law could help you meet your goals. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

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The post Does Getting a Divorce Hurt Your Credit? appeared first on Credit.com.