When Love Goes Wrong: Your Credit During Divorce
Checking your FICO Scores at the right time before applying for a credit card or loan puts you in the best position for approval and competitive terms.
Your credit may be the last thing on your mind when you are going through a divorce, but you'll thank yourself later for making an effort to think about your credit during this time.
Getting a divorce is often a painful experience, and not just for the obvious reasons. As you navigate the complicated emotions of the breakup, there are some logistical matters you should manage as well. It might not be the first thing that comes to mind, but even when you go through a divorce with a spouse, you should continue to educate yourself and take steps to stay on top of your credit.
A divorce doesn't have a direct impact on your FICO® Score (neither does getting married, for that matter). Yet separating the debts and finances you once shared with a spouse can have an impact on your credit in a significant way.
On a positive note, it is possible to go through a divorce and emerge on the other side with little or no impact to your credit. The following educational tips may help. (This content is provided solely for educational purposes and is not legal, credit, financial, or other advice-we encourage you to seek such advice as may be necessary for your particular situation.)
1. Check your credit reports.
Divorcing someone you share debts with can put your credit into a vulnerable position. So, it's wise to keep a close eye on your credit reports from all three major credit bureaus when you divorce a spouse.
Claiming free copies of your three credit reports is easy. Simply visit AnnualCreditReport.com. Per the Fair Credit Reporting Act (FCRA), you have the right to a free report from each credit reporting agency once every 12 months. You can claim a free report once a week through April 2021.
The reason it's so important to monitor your credit during and after a divorce is that your ex could potentially damage your credit in several ways—either intentionally or by accident. So, as you review your reports, you'll want to be on the lookout for red flags like:
- Late payments (especially on accounts your ex has agreed to pay)
- Unauthorized credit inquiries that indicate someone applied for credit in your name
- New accounts you didn't apply to open (aka identity theft)
If you discover problems on a credit report, it's important to address those issues right away. For example, you may want to make at least the minimum payment on joint accounts to protect your FICO® Score from further damage until you or your attorney can find a better solution. You can also consider freezing your three credit reports if you're worried that your former spouse might apply for accounts in your name.
2. Stop sharing credit cards.
During a divorce, you'll separate your finances from your former spouse. This separation should include credit card accounts.
There are two ways to separate credit cards, depending on the type of account. You can:
- Remove your ex as an authorized user if you're the primary account holder on an individual credit card.
- Close joint credit cards if the card issuer won't convert them to individual accounts.
Now, removing your former spouse as an authorized user or closing a joint credit card won't get rid of outstanding balances you already owe. But these actions may help you avoid getting stuck with the bill for any future credit card charges that your ex makes.
It's also worth noting that closing a credit card generally isn't good for your FICO® Score. An account closure might increase your overall credit utilization rate and might trigger a drop in your FICO Score, but divorce is a special situation. You will need to decide if it is better to cut financial ties with your ex, even if your FICO Score takes a temporary hit.
3. Make a plan for joint debts.
Splitting up the debts you created during the marriage can be one of the most challenging parts of a divorce, but it's not a responsibility you can afford to ignore. You risk severe credit damage if you fall behind on your credit obligations while you and your ex sort out who will pay which bill.
Remember that joint loans and credit cards may show up on the credit reports of both you and your ex. That means it's probably in everyone's best interest to work together and decide the best way to manage the debts incurred during your marriage.
A few options the two of you could consider:
- Use joint savings to pay off revolving credit cards and other debts as needed.
- Sell joint assets, like homes or vehicles, and use the proceeds to pay off the associated loans (plus other debts if there's money left over).
- Refinance the debts you will each be keeping into your names, assuming you can both qualify for new financing on your own.
Of course, not every divorce is amicable. If your ex refuses to work with you or if you can't agree on how to handle your debts amongst yourselves, the court may need to step in and assign responsibility for you in your divorce decree.
Keep in mind that creditors don't honor divorce decrees. For example, your ex might keep the house in the divorce and accept responsibility for the mortgage payments and remaining loan balance, but your name would remain on the loan if you were a co-borrower when the two of you purchased the house. The lender won't release you from the loan no matter what your divorce decree says. So, in that case, your former spouse would need to take out a new loan to pay off the original financing in order to remove the obligation from your credit reports.
During a divorce, one goal should be to separate every joint debt on your credit reports. If you don't, it could put your credit health at risk. Any late payments on joint accounts could still damage your credit. And the debts could limit your future borrowing capacity, even if your ex makes the payments on time.
Despite your best efforts, you may not be able to come through a divorce with your FICO® Score unscathed, but if you make a concerted effort to continue to educate yourself and stay on top of your credit during this time, with the educational information described above, you can be help put yourself in a better position to avoid or spot potential impacts to your credit.
And, even if you experience credit damage when you divorce a spouse, remind yourself that it doesn't have to be the end of your story. You can still make a plan to move forward after your divorce is finalized and your new life becomes a bit more stable. Remember, you can always learn more about healthy credit—it may take some time, but it is possible with the right plan and a little patience.