Many people who go through a divorce may find that their finances are appreciably different at the end of the process than what they looked like at the beginning, and that can include not only major monetary shifts, but also significant changes to their credit standing.
The unfortunate fact is that after many Americans go through a divorce, their finances are often in shambles because of the many changes to their lifestyles they may have been forced to go through. For instance, many may try to live on a much smaller budget than what they might have previously been accustomed to, but had to start relying more heavily on their credit cards to make ends meet, and as such took on significantly more debt. Others might have been forced to miss payments into their various credit accounts, sometimes through no fault of their own. In both cases, these missteps in dealing with their accounts can cause their finances to make significant declines.
Fixing credit following the divorce process
Of course, when dealing with a divorce, there is likely significantly more on couples' minds than just whether their credit cards and other bills are getting paid every month, but keeping all outstanding accounts in good standing is of the utmost importance to financial health both during and, in particular, after the proceedings have been wrapped up.
Again, the two biggest factors that relate to a credit score — accounting for a combined 65 percent of such a rating — are a borrower's ability to make all payments on time and in full, and the amount of debt being carried versus how much they are allowed to borrow. In the first case, the only way to maintain a perfectly healthy score is by making sure all payments are taken care of regardless of circumstance. If a consumer misses whatever deadline is listed on their monthly bills, even for one account, and even by one day, their payment history will take a massive hit and can significantly reduce their score. This portion of a rating alone makes up a total of 35 percent of their rating, and once it takes a hit, it can take several months or more of steady payments to return it to the health it might have had before the mistake took place.
Meanwhile, those who took on more debt as a means of helping to cover necessary expenses over the course of their divorce proceedings will likewise probably find that their credit score was diminished during that time period. This is because another 30 percent of one's score is made up of the total percentage of their total allowable credit limits they may be using at any one time. For instance, if a person has a credit limit across all their cards of $10,000, and owes $5,000 in outstanding debt, their total "credit utilization ratio" comes in at 50 percent. And while there is a common misconception that lenders like borrowers who owe more on their cards, in point of fact the opposite is true; the best way to max out the credit utilization portion of one's score is for borrowers to owe 30 percent of their total credit limits or less.
Therefore, those who may be looking to improve their credit score following a divorce will want to make sure they're doing two things first and foremost: Making all their payments on time, every month, and also paying more into the outstanding debts they may have racked up until they fall to less than 30 percent of total credit limits.
Where to move once the process is complete
Because many divorcees see their finances change significantly after they become legally separated, they might choose to move somewhere that is less expensive than their previous living situation. The best ways to find these places, whether they're relatively close to their previous homes or in other parts of the country, is to search online real estate listings for places where home or rental prices are lowest. This may allow them to start putting more money away as they attempt to rebuild all aspects of their finances, or even continue to reduce the debts they may have accrued during the divorce process. As a bonus, having an improved credit rating will likely give consumers access to the best possible terms on a new mortgage, or allow them to rent homes or apartments wherever they may choose, with far less fear of being rejected by a lender or landlord because of their rocky borrowing history.
In general, when trying to repair credit, consumers should also take the time to check their credit reports so that they can be sure there are no unfair markings lowering their credit ratings. If any such entries are discovered, working with a credit repair law firm may help to sort out the issue quickly.