Divorce is a major event in anyone’s life. It affects nearly every aspect of life, including your credit score. In 2015, the divorce rates for Americans were between 42 and 50 percent, and they have only gone up since then. It is vital to understand how divorce does and does not affect your credit, so you can take the necessary steps to protect yourself. In addition to your credit, you should also evaluate how your marriage ending might affect your entire financial situation. Remember that Lexington Law can help you evaluate and repair your credit score.
Know the Ways Divorce Affects Credit
First of all, you should know that divorce does not directly affect your credit score but the effect it has on your finances can impact your credit. There are many indirect ways the end of a marriage does influence it:
- One source of income instead of two
- Increased cost of living
- Increased amount of debt
- Additional financial responsibilities
- Destabilized financial situation
For example, one of the most common ways your credit score can suffer is by missing payments. Recently divorced individuals may have trouble making payments due to their finances being significantly changed. Some individuals may simply forget to make payments because of how much is changing in their lives. Others may have relied on their spouse to make these payments.
A few of the most significant and common credit issues that especially affect recently divorced individuals are as follows:
- Ignoring Financial Responsibilities –Whether it’s a cable, medical, or utility bill, failure to pay it hurts your credit. Make sure you have a good understanding of the bills you were jointly paying prior to the divorce, which bills will continue to come in, and who will be responsible for paying them.
- Closing Credit Cards– It is a common misconception that closing credit cards improves your credit. If you had joint credit cards with your ex-spouse, it may feel like a fresh start to close your cards. Doing this can lower your credit score, but if you’re worried that your ex will keep using them and max them out, there may be no other option. If there’s a balance, make sure to keep making payments so that you don’t default and ruin your credit.
The Steps You Should Take to Protect Your Credit
Your priority when it comes to finances should be to separate your credit and finances from your ex-spouse’s. It lays the foundation to help you start building your finances back up for yourself. Take these steps after getting a divorce:
- Close Joint Bank Accounts – The first thing to do is close any bank accounts you shared with your spouse. If it is in your name only, but your ex-spouse has access to it, you do not need to close it but ensure they no longer have access to it. The best practice when closing your joint bank accounts is to do it in person at the bank and divide all the money in the account prior to closing the account.
- Handle All Joint Credit Cards – There are many ways to sort out your shared cards, but it is important to take action. For cards with a remaining balance, have a discussion on how you will pay them off prior to closing them. It is often possible to split the remaining balance into two separate cards in each of your names.
- Get Everything Back in Your Own Name – After the divorce is complete, there should be nothing that is still legally joint between you. This is easy to handle for the big things, such as bank accounts, but it is hard to remember every little thing that has both your names on it. This includes bank accounts, credit cards, leases, mortgages, and titles. Who is responsible for what bills is usually outlined in the divorce decree.
- Evaluate Your Debt Situation – When a marriage ends, it is possible for one spouse to take on some of the debt that the other accumulated. You’ll want to take a look at how much money you’re making and figure out how to pay your debts.
- Make a List of Payments – To protect your credit, you can’t let your divorce keep you from making any required payments. Your list should include all previous payments you are still responsible for, as well as any new payments that may begin as a result of the divorce, such as child support or alimony. Missing too many alimony or child support payments can lead to collections, which can hurt your credit. It can also lead to wage garnishment, which can hurt your finances even more.
Reinforce Your Financial Security
Finally, you should think about how you can make your financial situation more solid. This does not affect your credit directly but helps you make consistent payments and can help avoid penalties. As your situation changes, consider taking these simple steps:
- Create a new budget taking only your own income into account
- Cut out non-essential expenses
- Set up an emergency fund
- Be conservative with new debt
If you’re worried about your credit situation or have already been affected by a divorce, contact Lexington Law Firm to help you repair your credit. Call now for a free personalized credit consultation.You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.