During a divorce, most people anticipate that their credit score might temporarily go down a bit. However, some of my divorcing clients experience sustained and significant declines in their credit score. Why does your credit score matter? If you’re planning to refinance an existing mortgage into your name, buy a new house with a reasonable mortgage interest rate, get a vehicle, want lower insurance rates or simply have access to credit, your credit score is a vital piece of your financial well-being. The good news is that with careful planning before, during and after a divorce, you can exit your marriage with your credit intact.
Tip Number One: Establish Credit in Your Name
If a divorce is on the horizon, now is a good time to start thinking about ways to protect your credit. Many of my clients mistakenly think they have credit in their name, but they are actually only an authorized user on their spouse’s credit cards. If you do not have any credit in your name, apply for a credit card now, use it and pay the balance off every month. Doing this will begin to establish your credit history.
Tip Number Two: Pay Your Bills on Time
Once the divorce is filed, make sure that you pay your bills on time. Doing this seems obvious, but can often become problematic. When your attention is diverted elsewhere (like negotiating a property settlement), bills may get overlooked. There may even be a dispute between you and your spouse about who is responsible to pay certain bills. If a bill is in your name, make sure it gets paid. You can always collect the money from your spouse within the legal process, but you cannot so easily overcome a ding to your credit for late payments.
Tip Number Three: Get a Copy of Your Credit Score
During the divorce, it is important to see your current credit report for several reasons. It is helpful to see what your score is, especially if you are about to sign an agreement that says you need to refinance the house in a given amount of days. Also, your credit report will show you all the accounts that are in your name and their current balances. Many of my clients have used this technique to discover credit accounts that are in their name that they did not even know existed. This is important information to have while your divorce case is still open and you have the opportunity to address any potential problems.
Tip Number Four: Monitor Your Credit for Changes
During the divorce process, take advantage of free credit monitoring services like Credit Karma or Experian that help you monitor your credit daily. Services like these alert you immediately if you are late on a reporting payment or if there are new accounts in your name. In addition, they are a “soft” pull on your credit and do not negatively impact your credit score.
Tip Number Five: Critical Steps to Take When the Divorce is Final
Once the divorce is over, make sure that you remove yourself as an authorized user on any of your former spouse’s credit cards. Similarly, make sure that your ex-spouse is no longer an authorized user on any of your accounts.
It is important to remember to close all joint debt accounts and to retain only the debt that is in your name. Even if your Judgment of Divorce says that your ex-spouse will take over payments on one of your individual or joint accounts, you are in a precarious position if they do not. Debtors do not care what your Judgment says. They only care about whose name the account is titled in.
Lastly, if your credit took a hit during the divorce, make sure that you keep your credit utilization low by holding overall credit card balances at less than 30% of what is available to you.
For more information about how Pearl Planning can assist with protecting your credit or any other financial concerns you have during your divorce, reach out to Pearl Planning’s Certified Divorce Financial Analyst®️ Jacki Roessler via email@example.com.
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