10 Ways Divorce can Affect your Credit

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As nearly half of the American population already knows, divorce is a difficult, emotional process to go through. This difficulty can be compounded depending on the number of years a couple has been together, the dollar amount of their acquired assets, and whether or not they have any children.

Divorce can also have an impact on your credit, though the proceedings themselves are not the reason for this. In other words, couples shouldn’t expect their credit scores to plummet the second they file for divorce. However, there are things that occur during divorce that can have a negative impact on credit. Here are 10 ways in which a divorce could affect your credit score:

  1. Having to refinance your home

    In order to move a property into one person’s name, it may be necessary to refinance your mortgage. As with any refinance situation, this will require a hard credit inquiry, and may also potentially add a great deal of new debt for one person.

  2. The splitting of the debt was uneven

    When assets are divided, one person may get to take more of the income, property, or assets, but also more of the debt. It all just depends on how the debt is divided.

  3. Going from two incomes to one

    If possible, it’s helpful to examine finances before a divorce and determine new budgets for both parties, so as to avoid falling behind on any bills or payments. Many divorced individuals report that losing another person’s income made the single greatest impact on them financially. Setting up a new budget early on can help avoid this issue.

  4. Not disclosing all debt during the proceedings

    At some point during the divorce process, both parties are required to disclose their financial accounts. However, as former spouses sometimes learn, not everyone is truthful about these assets. Running a credit report is the best way to ensure you’re aware of every account bearing your name.

  5. One party doesn’t pay his or her agreed-upon share

    Most courts are willing to work with couples to help them discuss and agree on a payment plan for shared assets, such as a home or any jointly-owned property.

  6. One party still has access to the other party’s accounts

    In the event that divorcing spouses do not split their joint accounts, both parties will still be responsible for any additional charges. It’s best to split any joint accounts as soon as possible.

  7. Credit limits are decreased

    Many creditors regularly check up on their clients to see if there has been a salary change, and most credit card agreements state that limits can be decreased at the creditor’s discretion. If one spouse was making more money than the other, and the accounts are separated, a credit card company can choose to lower the limits for one or both spouses. This can, in turn, affect credit scores, as well as catapult credit card holders to their maximum limits very quickly.

  8. The divorce turns ugly

    While no one enjoys going through divorce, the best solution is to try and remain civil to one another, lowering the risk of spouses doing financial harm to one another out of spite.

  9. There is confusion over the divorce decree

    People can often be confused about their financial responsibility as stated in the divorce decree. If you are unsure of where you stand or what you must pay, consult your attorney, family court facilitator, or mediator.

  10. Spouses don’t work together

    Sometimes, electric bills can be overlooked or go unpaid. Keeping the divorce process as amicable as possible helps parties communicate with one another over their shared financial responsibility after the households have been completely separated. Working together ensures everyone’s credit remains in good standing.

 

Image: iStock

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How (and why) to Request a Credit Limit Increase with American Express

Pretty Young Multiethnic Woman Holding Phone and Credit Card Using Laptop.

In this first installment of our multi-part blog series about how (and why) to request a credit limit increase with various banks and financial institutions, we’ll examine how to go about requesting an increase with American Express. Perhaps the most important thing to remember as you read this blog (and subsequent ones in the series) is that when it comes to requesting a credit limit increase with any financial institution, it’s not the how part that matters most – it’s the why. There are good reasons to request a credit limit increase, and there are bad ones, and understanding the difference between the two is critical.

Why increase your limit in the first place?

Let’s get this out there right off the bat: Requesting a credit limit increase so you can spend more money each month is not a smart thing to do. As you probably well know, failing to pay off your credit card in full and paying big money in interest each month is not a great way to build wealth. So, if you’re requesting a higher credit limit just to spend more money on non-essential purchases each month, you should probably reconsider.

Now, if you are (and want to remain) a financially responsible borrower, the primary reason to request a credit limit increase is to lower your overall credit card utilization rate. Your credit card utilization rate is a measure of how much of your available credit you use each month. The math is pretty simple – just divide your total credit card balance by your total credit card limit. So, if you have a $5,000 balance and a $20,000 credit limit, your credit card utilization rate is 25 percent. Most financial experts advise maintaining a utilization rate of no higher than 20-30%, across all of your cards.

Lower utilization rate = better credit score

Lowering your credit card utilization rate is important because there’s a strong correlation between your utilization rate and your credit score because it accounts for 30% of your overall credit score. Now, credit scores are based on complex scoring algorithms that take many factors into consideration, so it’s impossible to specify the exact impact of your credit utilization rate on your overall credit score. But what we know for sure is the lower your credit utilization rate, the better your credit score is likely to be, and the easier it will be for you to borrow money at the lowest interest rates. So, going back to the hypothetical example above, if you were to charge the same $5,000 each month, but get your credit limit raised from $20,000 to $30,000, your utilization rate would drop from 25 percent to down under 17 percent. That’s a good thing.

How do banks decide?

Of course, the decision to raise your credit limit isn’t solely yours. Your credit provider has to agree to the request. There’s no great mystery here. If you have a clean credit history, a healthy income (relative to how much you charge each month), keep your monthly balance low, and make your payments on time, chances are you’ll have your request approved. In fact, if you’ve proven yourself to be a reliable borrower over a prolonged period of time, many financial institutions will proactively raise your credit limit without you even having to make the request. On the flip side, if you carry a large balance, have a checkered credit history, and have been inconsistent about paying your monthly bill on time, chances are your lender will be hesitant to increase your credit limit. If you fit into the latter category, you’re best served spending time cleaning up your financial act and proving yourself a reliable borrower before requesting an increase.

Requesting an increase from American Express

The good news is we live in a digital world, one where institutions like American Express have made it fast and easy to request a credit limit increase right online with just a few clicks. Start by logging into your account at www.americanexpress.com.

Step 1

Once you’ve logged in, click on Account Services.

Amex Screen 1

Step 2

Next, click on Credit Management.

Amex Screen 2

Step 3

From there, click on Increase Line of Credit.

Amex Screen 3

Step 4

You’ll then be asked to enter your 4-digit personal code, usually found on the right side of your card, just above your credit card number.

Amex Screen 4

Step 5

Finally, you’ll be taken to a page where you can formally request an increase to your line of credit. Note that you’ll have to enter both your new desired credit limit and your total annual income.

Amex Screen 5

For those who prefer good old-fashioned human interaction, you can also request a credit limit increase by calling the American Express customer service line at 1-800-528-4800.

A few housekeeping items to keep in mind that are specific to American Express:

  • You cannot request a credit limit increase until you’ve had your American Express card for more than 60 days.
  • If your request is approved, you’ll need to wait at least 6 months before you can request another increase.
  • If your request is denied, you have to wait at least 90 days before you can make another request.
  • In order to maximize your chances of approval, it’s generally recommended that the new credit limit you request is no more than three times the size of your current limit.
  • One of the best features of American Express is they don’t do a hard pull of your credit report for credit limit increase requests, meaning your credit score won’t be adversely affected.

Your credit limit was increased. Now what?

Let’s assume all goes well and your credit limit is increased. What should you do next? Ideally, nothing. If you started this process for the right reason – to improve your credit score by lowering your utilization rate – then having your limit increased should have no bearing on your spending habits. Simply continue spending at the same level you were before your limit was increased, and let your credit score reap the benefits.

The post How (and why) to Request a Credit Limit Increase with American Express appeared first on MagnifyMoney.

Help! I Need a Higher Credit Limit

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An ample credit limit can give you lots of spending power and flexibility, so it’s understandable why a person may be looking to get a higher one.

Still, if you’re one of them, be sure you can handle more available credit first. Credit cards are best leveraged by paying your balance off in full each month. Otherwise, interest can really bump up the lifetime cost of your debt.

Plus, high credit card balances can damage your credit — you want to keep the amount of debt you owe below at least 30% and ideally 10% of your available credit limit(s) for best results. You can see how current balances may be affecting your score by viewing your free credit report summary, updated each month, on Credit.com.

Will More Credit Cause More Problems?

Consumers looking for a higher credit limit because they’re already overextended should look to pay existing expensive balances down first. Doing so can keep you from getting (even further) in over your head.

You can pay down credit card debt by looking into a debt consolidation loan or balance transfer credit card. (You can go here to learn about the best balance transfer credit cards in America.) You can also redraft your budget to see where you might be able to find more dollars to put toward those balances.

With that in mind, here’s how you can ultimately score a higher credit limit.

1. Improve Your Credit

Lending decisions — including what credit limit you will be awarded — are largely determined by your credit score. So, before you start looking for a bump, be sure your credit is in tip-top shape. You can generally improve your credit by reviewing your credit reports for errors, pinpointing your credit score killers and coming up with an action plan.

2. Increase Your Net Income

Issuers also take income into consideration when deciding on credit limits, so increasing your monetary intake (or, conversely, lowering your monthly expenses) could make you eligible for an increase. Keep in mind, the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) allows banks to consider any household income you have access to, an important consideration for at-home spouses.

3. Call Your Issuer

Issuers routinely review cardholder creditworthiness, so, yes, there’s a chance they’ll up your credit limit all on their own. But if there’s a time-sensitive reason you’re looking for more credit or there are certain circumstances your issuer may not otherwise know about (like your recent raise), you’re better off calling them directly to request an increase. Just remember this request may generate a hard inquiry on your credit report.

4. Comparison Shop

If your issuer won’t bump up your limit or you think your credit score has improved enough to qualify for better terms and conditions, consider shopping around for a new credit card. Premium rewards credit cards, for instance, tend to have higher credit limits associated with them. Just be sure to vet carefully any card you are considering before applying, since these applications, too, will generate a hard inquiry on your credit report and could ding your credit score.

More on Credit Reports & Credit Scores:

Image: Ingram Publishing

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