Divorce is an emotionally and mentally taxing experience, and amid the legal and personal upheaval, it is easy to overlook your financial health, especially your credit report. Many people only think about credit when applying for a loan or making a major purchase, but during a divorce, your credit report can play a pivotal role in safeguarding your financial future. Taking the time to review and understand your credit report can help you catch errors, identify shared debts, and prevent unexpected financial setbacks. It’s a small but powerful step toward regaining control and building a stable foundation for your next chapter.
What is a Credit Report and Credit Score
A credit report is a detailed record of your loans compiled by credit reporting agencies (also called credit bureaus) like Equifax, Experian, and TransUnion. It includes information such as the timing of your open and closed credit accounts, payment history, outstanding debts, and any public records like bankruptcies or foreclosures. Your credit score is a three-digit number that typically ranges from 300 to 850. This number summarizes your creditworthiness based on the data in your report and potential lenders use this score to assess how likely you are to repay borrowed money. A good credit score is often deemed to be a number in the mid 600s and above. The higher your score, the more likely you are to qualify for favorable loan terms, lower interest rates, and better financial opportunities. In the U.S., you are entitled to one free credit report per year from the three major credit bureaus: Equifax, Experian, and TransUnion. You can request your report online through AnnualCreditReport.com or directly from the credit bureau.
How Divorce Affects Credit Scores
Divorce does not directly impact your credit score, as your marital status isn’t included in your credit report. While every individual has their own credit report tied to their Social Security number, divorce can have a significant impact on your credit health due to how shared financial responsibilities are handled during and after the separation. Below are the key items to understand as you review your report.
Identifying & Planning for Joint Liabilities: If you and your spouse shared credit cards, were both on a mortgage, loans, or other joint accounts, both of you remain legally responsible for those debts during and even after the divorce. A good first step is to review the sections about credit accounts and public records carefully and take note of all listed liabilities. Make sure you understand what each item is related to and communicate this to your team so they can document all liabilities and help ensure they are accounted for on your Marital Balance Sheet. If joint liabilities are tracked throughout the process, this can help you come to an appropriate settlement, rather than being surprised by debt towards the end of the process. If there is an account that appears to only be tied to your name, be sure to check on authorized users as well. It is possible that this line of credit is not joint, but your former spouse has access which gives them the ability to impact your credit. It is good to be thoughtful about the liabilities and credit accounts that you would like to keep after the divorce so you can factor this into your agreement but know it will not always be possible to maintain your existing accounts. For example, if one individual has all their auto-payments tied to one account, it could be nice to remove the other from the account rather than closing it, but some institutions will not allow that if the spouse was not already the primary user.
Reviewing for Vindictive or Fraudulent Behavior: In some unfortunate cases, one spouse may intentionally damage joint credit accounts out of spite or simply fail to manage them responsibly. With access to all of your personally identifying information, a former spouse could open credit lines in your name or misuse joint accounts without your knowledge. This can lead to increased debt, past due payments, or even collections, all of which hurt your credit. Reviewing your report will help avoid long-term damage from this going on unknowingly. Additionally, financial fraud is growing each day, and by reviewing your credit report, you can help ensure there are no unauthorized accounts opened without your consent or irregular activity even if they are not related to your former spouse. After confirming that nothing looks amiss, there are are steps you can take, such as placing a fraud alert or freezing your credit to help protect your financial identity. Keep in mind this prevents lenders from checking your credit so if you are opening new accounts or taking on new loans, you will either want to wait until these are approved or temporarily lift the freeze. You can freeze and unfreeze your credit for free, but you will need to contact each bureau individually. Do not be alarmed if you see some closed lines of credit listed on your report after the divorce. Closed accounts in good standing can remain on your credit report for up to 10 years. These can help your credit score by contributing to a longer credit history and showing responsible past behavior.
Executing & Tracking Post-Divorce: A divorce decree or marital settlement agreement may assign responsibility for certain debts to one spouse, but creditors aren’t bound by that agreement. If your name is still on the account, you’re still liable in the eyes of the lender. After the divorce, you should verify that all financial agreements made during the divorce are being followed and that no unpaid debts are accumulating under your name. You can refer to the terms of your divorce decree or Marital Settlement Agreement to help ensure proper action is taken to close joint accounts or reassign these liabilities. Each institution will have a different process for removing or closing accounts so try to communicate as clearly as possible with your former spouse to help ensure no one is caught off guard by these transitions.
Understanding Your Options Moving Forward: If you didn’t have credit in your own name during the marriage, it is important to understand your credit limit and score might be lower than expected even if you do not have any negative marks on your report. This is because the length of credit history and having a mix of different types of credit can impact your score. It can take time to build and there are credit card options for individuals with little to no credit history. The good news is that if you were a joint owner with good credit habits, the credit history will remain on your report and if you were an authorized user, often times this data is reported to credit bureaus to help build your score. If you have a joint mortgage, it is important to discuss your options with your team. While sometimes possible, it is not always the case that one spouse can assume the existing mortgage. Often times, you will need to obtain a new mortgage based on current interest rates and income or assets post-divorce which can greatly impact one’s ability to keep the marital home.
Divorce is a significant life transition, but taking control of your finances by reviewing your credit report can prevent future complications. What could you discover or prevent by taking a closer look at your credit today?
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