Fixing Your Credit After a Divorce
We are all aware that divorce wreaks havoc on a person's emotions and personal well-being, but the financial hardships of a divorce can sometimes take even longer to overcome. Long after the dust settles on the broken relationship and each party has moved on to a happier life, the financial burdens may remain.
Even in the most amicable of divorces, numerous scenarios can lead to bill payments being missed and subsequent blemishes ending up on both individual's credit reports. But when the fallout from a divorce is at its worst, judgments, foreclosures, and bankruptcies can all come into play, and these things can eventually destroy the credit scores of both people involved. Finances are cited as a common reason for divorce, and it is an unfortunate added blow when the financial situation becomes even worse after the divorce.
To that end, divorce often illustrates the basic unfairness of the credit reporting system. As a couple divorces, the numerous debts they have incurred as a union are then divvied up among each party so that only one person is responsible for making the house payment, the car payment, various credit card payments, student loans, etc. There is a significant problem in this scenario: even when a judge assigns the debts to each person, the numerous creditors involved are not interested in the fact that only one person is accountable for each debt.
When trying to collect these debts, creditors will try to hold both parties responsible for them. So, for example, even if the judge in the divorce proceedings has declared that one party is wholly responsible for paying off of a particular credit card balance- when those payments start coming in late, the credit card company may start adding negative listings to both individual's credit reports.
It is not an uncommon scenario for someone who has gone through a divorce to suddenly see negative marks appearing on their credit reports for accounts that they are not responsible for and, even worse, ones they were not even aware were in poor standing.
When this frustrating situation occurs, the credit scores of both parties involved can begin to take a significant dive, but that is not even the worst of it. In some cases, one party will stop paying altogether on their debts and even declare bankruptcy, which in turn leads creditors to begin chasing the other party to repay all of the debts.
As a result, a person who has worked hard to manage the debts they were supposed to be responsible for following the divorce, may see their credit score nosedive through no fault of their own. They may face losing their home or possibly having to file for bankruptcy as well because the debts of two people are simply too much to handle.
No one wishes to “plan” for a divorce, and credit scores are certainly not on the top of the mind when walking down the aisle and planning a happy future. But the reality is that many marriages end in divorce, and if you find yourself in the midst of one, you must prepare for the financial toll and protect yourself when it comes to your credit score.
We will walk you through some important steps to take in terms of your financial health when divorcing, which will help you protect your credit score and your ability to secure loans in the future. A divorce may find you looking for a new home or a new car, and it is certainly not the time for added stress from being denied loans!
Step One: Get Organized
While emotions run high during marital separations and divorces, if you can work amicably with your ex-spouse to organize your financial matters, it will benefit everyone involved in the long run.
To the extent that you are able, work with the other party to document any and all financial obligations incurred during the marriage, including mortgages, credit card accounts, medical bills, student loans, etc. You will want to have at your disposal full documentation of what you owe on each account, whose name is on the account, and whether any of them are past due.
If you are able to sort out these financial matters through court mediation, this may create a great savings opportunity for you versus taking the divorce to court. This is not possible in every scenario, but it is something to consider in terms of softening the financial blow.
Be as transparent as possible with the other party about your debts, ensuring that you have shared all information about financial obligations the other party could be held accountable for by creditors.
Step Two: Contact Creditors
Once the divorce is finalized, and the debts are divided, it is a good idea for you to contact creditors to ensure your name is not on the accounts for which you are not held responsible in the divorce settlement. While it’s true those creditors can still come after you for the debts; it serves you well to create a paper trail of sorts. Record the names and dates of these conversations for future reference.
Step Three: Keep Paying Your Bills on Time
This is our mantra when it comes to protecting your credit score, and it still rings true even during a divorce. Because the divorce puts you at risk for future financial problems if your ex-spouse does not pay back debts, you need to ensure you are staying on track with your own. The emotional toll of a divorce makes many people want to simply hide under the covers, and it can be unbearable to manage even the simplest daily tasks. But staying organized and on top of your bills, even during this difficult time, is crucial to protecting your financial future and your credit score.
Plus, you want to maintain an excellent track record with your own debts should you need to dispute a divorce-related blemish on your credit score. At the very least, you can show you have a solid track record when it comes to the debts assigned to you by the court.
Step Four: Ask for Help. Negotiate.
During the financial distress of divorce, consider and seek out any options available to you to manage your debts. In some cases, you may be able to negotiate with lenders for a modified payment plan until you can get back on track. You won’t know until you try, and this includes how you pay your divorce attorney as well!
Consider every loan and every debt and explore ways to modify them if at all possible. It’s also a good idea to cut back on ALL unnecessary spending, which may allow you to build some savings to protect yourself if you incur additional debt as a result of the divorce.
It will take some time to adjust to a new budget after the divorce: you may be used to what you spent on two incomes, and this may shift dramatically when you are left with one. Therefore, you should keep a close eye on all expenses and how they ultimately impact your credit score. Be wary of racking up credit card debt to “make it through” the divorce, as you may then find yourself ruining your own credit score.
Step Five: Keep a Close Eye on Your Credit Report
You can obtain a free copy of your credit report every 12 months, and you should certainly take advantage of this after a divorce. You need to stay aware of any unexpected dips in your credit history that may be a result of your former spouse not paying debts. Even in amicable divorces, individuals cannot be complacent about checking this. It is down to you to act as your own best advocate when it comes to monitoring, protecting, and ultimately repairing your credit score.
Work Toward a New Start by Fixing Your Credit
Because of the effect it can have on your finances, putting effort into fixing your credit reports may be one of the best things you can do to help put a divorce behind you and start moving forward on the rest of your life.
For many people, part of this process involves building credit. Credit history is a huge part of your score, and for some spouses who have stayed at home with children during the marriage, they may not have enough history of their own to generate a score (or a good one at that).
If you find yourself starting from scratch, be sure to review our articles on building credit history and the steps you need to take to get off on the right foot. (See Establish Good Credit and Fix Bad Credit)
Your credit score is supposed to be an accurate reflection of your creditworthiness, but when negative items are wrongfully added to your credit reports after a divorce, lenders are ultimately left with an inaccurate impression of you. You may be a financially responsible individual who can be counted on to repay your debts, but the inaccurate items in your credit reports give lenders the false impression that you are less than trustworthy.
Your poor credit rating ends up being a link to unfortunate past events, and it is also an obstacle to making the most of a happy future. When your credit report is damaged by the financial fallout from a divorce and an ex-spouse whose actions have unfairly hurt you, the law gives you the right to dispute any items in your credit reports that you feel may be inaccurate, untimely, misleading, incomplete, ambiguous, unverifiable, biased or unclear.
By effectively disputing and removing these questionable negative items from credit reports, people have been able to significantly improve their credit scores and erase the negative effects a divorce had on their credit.
My Bad Credit Score is NOT My Fault…What Next?
There are many ways you may find yourself with a bad credit score due to circumstances ultimately outside your control, whether it is from the financial fallout of a divorce, a case of identity theft, or various errors that have gone undetected in your credit history. Unfortunately for so many people, their bad credit label is completely undeserved.
They are offered loans only with high and unreasonable interest rates or denied loans altogether. This can mean the inability to purchase a home or a car, to pay college tuition, or even in some cases to secure employment because many employers check credit ratings. It is an incredibly frustrating scenario for anyone, most especially someone already grappling with the emotional toll of divorce.
Thousands of people who are considered to have bad credit based on the information in their credit reports are, in actuality, not a high credit risk. The information in their credit reports is giving lenders an unfair impression of who they are, and they are suffering the consequences in the form of high interest rates and other bad credit-related expenses.
While the credit score system is based largely in algorithms, it is not immune to human error.
Fortunately, the law affords people who are being unfairly labeled as having bad credit with the ability to dispute any of the questionable items in their credit reports in an effort to have them permanently removed.
Lexington Law has helped people like this legally remove millions of questionable items from their credit reports including late payments, collections, charge-offs, and bankruptcies.