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.]

More on Credit Reports & Credit Scores:

Image: AndreyPopov

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

I’m Divorced, So Why Is My Spouse Still on My Credit Report?

divorce_dividing_debt

In the midst of your divorce, you’ve probably discussed separating your assets, but you might be less inclined to talk about who’s going to take responsibility for shared debts.

Most courts will divide up responsibilities for these during a divorce decree, giving one individual the ownership of each debt.

However, “the decree does not change the contractual relationship that you or your spouse may have with the creditor because the creditor is not a party to your divorce,” John C. Heath, credit expert and attorney for Lexington Law, a Credit.com partner, said.

That means that while only one of you may now be legally responsible for paying the debt, the other person’s name is still attached to it unless you let the creditor know to remove it. This could be why you’re still seeing your former spouse on your credit report.

How Shared Accounts Get Separated

Rules on how to divide joint accounts vary by state, but most places consider debts acquired during the marriage as shared property. It may be a sore subject, but it’s important to make dividing up your debts a priority.

Contact your financial institutions and close or separate all shared accounts, including credit cards, home loans and mortgages.

If you don’t, you and your former spouse will continue to be tied together financially. And if an ex-spouse runs up credit card balances and fails to pay or falls behind on a mortgage that still has your name on it, the negative marks will show up on both of your credit reports.

After closing out all joint credit cards, you can ask each financial institution to re-issue you a card in your name only. You can also refinance joint installment loans such as auto and home loans.

“Be diligent in refinancing debt or selling an asset that has debt against it, and in making certain that any assets get retitled,” Rebecca Zung, Esq. Marital and Family Law attorney in Naples, Florida, said.

It could be better to make these decisions between the two of you instead of letting a third party determine your financial future.

“You can agree to divide debts and account responsibilities and then take appropriate steps to remove the non-obligated spouse from divided joint accounts,” Heath said. “You are a better decision maker than a judge who may glance at your case prior to making a decision about your financial future.”

If you have shared credit card debts, you can use a free tool like Credit.com’s Payoff Calculator to figure out a plan to pay off your debts.

One of the most common things that impacts credit scores after a divorce is when the person responsible for settling a joint debt doesn’t pay up, Heath said.

“If this failure to pay is on a joint account, it will affect both parties, including the innocent party’s credit reports,” Heath said in an email. “Even though the innocent party is not responsible for the debt, it is still reported as delinquent on their credit report.” 

If your ex isn’t paying the debt, and it’s messing up your credit, you can dispute the delinquency with the credit bureaus, Heath said. (You can go here to learn more how.)

Also, “you can ask the court to compel or find your ex in contempt for failure to pay,” he said. “You could also ask for your attorney fees and costs to do this.”

Monitoring Your Credit

As you update your accounts, it’s a good idea to make sure the changes take.

“Check your credit a few months after the divorce to be sure it is accurate,” Rebecca Zung said.

Too see where your credit currently stands, you can view your free credit report summary on Credit.com. This report is updated each month, so you can see how changes are affecting you as time goes on after your separation and if there are any other steps toward improvement that you need to make. You can generally improve your credit in the long-term by making all loan payments on time, keeping debt levels low and limiting new credit inquiries as your score rebounds.

[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.]

More on Credit Reports & Credit Scores:

Image: Alexander Raths

The post I’m Divorced, So Why Is My Spouse Still on My Credit Report? appeared first on Credit.com.