When was the last time you checked your credit rating? Many people heading towards divorce do not fully consider the financial implications of parting ways. Before you undo your marriage, it is wise to consider taking steps to remain fiscally fit after your divorce is final.
Naturally, going from two incomes to one can make an impact. In most couples there is at least a temporary change in lifestyle due to financial concerns. According to a recent study conducted by debt.com, 40 percent of divorcees took on more than $5000 in debt right after divorce. While 43 percent took over the sole responsibility for a debt they previously shared in the marriage. This increase in debt holds a bigger and more lasting implication: It can tank a healthy credit score.
Among the 800 divorced Americans surveyed, 38 percent saw their credit scores drop by more than 50 points. Your credit score and rating is important because it influences how much money you can borrow and the interest rate. So when it comes time to purchase your post-divorce home, you might find yourself turned down for a mortgage or facing higher monthly payments if your credit rating is low. (Credit scores range from 300-850 with 700 being considered “good” and 800 or higher considered “excellent. According to Experian, one of the three major credit reporting bureaus, most credit scores fall between 600-750.)
If you know you are moving towards divorce, there are steps you can take today to protect your credit rating from the divorce dings. Consider these tips before you untie the knot:
- Pull Credit Reports Now: Before you do anything else, if you haven’t looked at your credit rating and scores, do so now. There are three credit bureaus (Experian, TransUnion and Equifax). Each provide free credit reports. Typically, you can run one free report per bureau per year, but currently due to COVID19 conditions, these bureaus are providing free weekly (Go to annualcreditreport.com for details.)
Each bureau gathers slightly different information so it’s a good idea to check all three. After you receive your credit report, which shows all open credit accounts, you can opt to purchase your credit rating or number. While reviewing, looking for any discrepancies in the credit attributed to you. Flag errors or old credit accounts that you no longer use and follow up with creditors to close any unnecessary accounts. (The more accounts you have open, the more likely you are to have a lower credit score.)
Make note of any accounts that are held jointly with your spouse. You’ll want to discuss how to resolve these accounts either by removing one of your names and having one spouse assume the debt or by paying off the account together before you divorce and closing it entirely. (Ask your divorce attorney to help you navigate this negotiation.)
Likewise, if you’ve added your spouse as an authorized user to any account you opened before your marriage, you’ll want to settle up that debt and have his or her name removed.
- Monitor Joint Accounts: Even if you agree to disagree on many aspects of your divorce, money issues can easily become emotionally charged — and credit cards can get charged up! Keep an eye on any accounts that bare both you and your soon-to-be-ex spouse’s name. Some cards may even allow you to set limits for each user or alerts if large purchases are made on that account.
Also, make note of any recurring changes that hit your account, such as subscriptions or automatic bill-pays. Make the move to change the source of payment if you are no longer using or responsible for that service once you have separated.
If you do not have your own credit cards, take this opportunity to open new accounts in your name to help build or establish your individual credit rating.
- Communicate with Creditors: Lenders appreciate being looped into any changes that may impact the payment of their accounts. But when the ownership of the credit account shifts, it’s your obligation to let them know as soon as possible. If your name and your social security number is associated with the account, you are liable for paying the debt even years after you and your spouse are no longer husband and wife. Make sure your name is no longer on any accounts (credit cards, utilities, memberships, etc.) if you are no longer responsible for or enjoying the service.
- Freeze-y Does It. Worried that accounts in your name may be compromised by your spouse? There’s an easy step to safeguard your financial interests. If a vindictive ex’s might try to use your name and social security number to open accounts without your permission, freezing your credit is a good option. A credit freeze can be made through the three credit bureaus and disallows any new credit accounts to be opened under your social security number and name for a specified amount of time. You can temporarily lift the freeze anytime or have it permanently removed once the threat has lifted. (It is also a good idea to change the PIN number and passwords to your bank accounts and credit cards as soon as possible.)
Although divorce can be disruptive and difficult, with a little for thought and planning, you can protect your financial future before problems arise.