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Getting a divorce is a major change that can affect different aspects of your life, including your financial habits and obligations. While there are many important decisions you’ll need to make during this process, it’s a good idea to keep a close eye on your credit score as well.
Of course, it’s always important to monitor your credit score, regardless of your marital status, but 42% of men and 54% of women say their credit score decreased after divorce. However, getting a divorce does not inherently lower your score, but changes in your financial obligations might.
Below, Select breaks down the different ways a divorce can impact your credit score and how you can protect yourself against a potential drop.
How Divorce Can Affect Your Credit Score
Missing payments on joint debt
The divorce process can be emotionally demanding. Consequently, it may be easy to forgetting to pay your credit card bill or car loan payment. But there’s an even bigger reason why you might accidentally miss a payment on a debt you and your partner had together.
“Couples get joint credit cards, mortgages, car loans and other debts,” said Jim Droske, president of Illinois Credit Services. “In a marital settlement agreement, a judge decides who will be responsible for certain debt payments. But even if your spouse is asked to make payments on your joint credit card, in the eyes of a creditor, you are. both responsible because credit was given to both of you.”
Droske explains that people tend to think they no longer need to pay off some joint debts because a judge has given their spouse the responsibility. But if the debt is still on your credit report and your spouse misses a payment, it can still affect your credit score.
For this reason, it’s important to always be aware of what’s on your credit report. You can use a free service like Experian view your credit report and credit score, whether or not you are going through a divorce. This will help you determine which loans and credit cards are in your name and where a possible missing and/or late payment could occur.
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Once you know what’s on your credit report, it’s a good idea to make at least the minimum payments on time.
“A lot of people get mean during a divorce and don’t want to pay for the financial obligations they had with their partner,” Droske said. “If you know what’s on your credit report, no matter what, make sure minimum payments are made, or you’re jeopardizing your credit.”
Closure of joint credit cards
Closing a credit card can impact your credit utilization rate, regardless of your marital status. When you close a card, you reduce the total amount of available credit you have.
Say you have two credit cards with a limit of $10,000 each, giving you a total available credit of $20,000. If you spend $5,000 on a card, you’re only using 25% of your total credit. Corn if you close a card, your total available credit will be reduced to $10,000. Even if you didn’t spend more money, your usage is now 50%, and higher usage can lower your credit score.
When it comes to divorce, couples generally don’t want to keep joint credit cards once they’re separated. So keep in mind that closing a joint credit card can lower your credit score, as your credit usage may be affected.
Brett Holzhauer, a reporter for the Select team, was able to keep his credit score unaffected after his divorce because the majority of credit cards were in his name. However, he notes that if you cancel cards between you and your partner and your score drops, starting with healthy credit gives you more flexibility to take that hit.
Be deleted as an authorized user on your partner’s credit card(s)
An authorized user is an additional cardholder on someone else’s credit card account. Even if you don’t have to make payments on your partner’s credit card bill, being an authorized user on their credit card can improve your credit score if they spend responsibly. and makes regular and punctual payments. This can be particularly beneficial for a spouse who previously had no open accounts on their credit report.
However, if you are removed as an authorized user on your spouse’s credit card(s), your credit usage may be affected and you could see a decrease in your credit score.
How to financially prepare for a divorce
Understand exactly what’s on your credit report
Whether you’re married or not, knowing what’s on your credit report will help you understand which debts are impacting your credit score. But it’s especially important to keep an eye on your credit report when you’re going through a divorce so you know which debts you’re both responsible for and which ones. cards must be cancelled.
“Once there’s an agreement on who will pay what, people tend to think they’re off the hook if the other person is responsible for paying the debt,” Droske said. “But a late or missed payment will impact your and your spouse’s credit. “People think they can just call the creditor and say they’re no longer responsible for payments because they’re getting divorced, but it doesn’t work that way.”
It also helps monitor your credit for any new credit accounts or loans you don’t remember opening yourself. New unknown accounts on your credit report may be a sign that someone is using your name to get a new line of credit. Experian can also help you monitor your credit, but our roundup of some of the best credit monitoring services may provide you with other options.
Consider keeping your accounts as separate as possible once married
“It doesn’t work for every couple, but forcing you to only have your own separate accounts can make things cleaner in the event of a divorce,” Droske said. This way, you won’t have to worry about a partner not making a payment to a card that’s in your name.
Of course, some financial obligations might be more difficult (if not impossible) to separate, such as a mortgage payment on a house (here’s how one person handled buying their house after a divorce). You may also consider a prenup (or a post-nup if you’re already married) to plan the distribution of obligations and assets in the event of a divorce. But if you and your partner prefer to combine all your finances, here are three important recommendations from a family wealth advisor that you might want to consider.
Freeze your credit
A credit freeze allows you to restrict access to your credit file without affecting your credit score. Since lenders require a credit check before approving you new loans and lines of credit, neither you (nor a malicious ex-spouse) will be able to incur new debt in your name until your credit is unlocked. .
“Some situations get nasty, and there are circumstances where a spouse opens an account without your knowledge,” Droske explained. “That’s why you need to check your credit report and consider a credit freeze so you have more control and people can’t open new debt on your behalf.”
From an emotional perspective, a lot can happen during a divorce. But sometimes the process can seem even murkier when it comes to the financial effects and the potential impact on your credit score. Getting divorced doesn’t impact your credit score, but changes to your (or your ex-partner’s) financial obligations as a result of a divorce might.
One of the best ways to prepare is to monitor your credit score so you know exactly what’s on your report (and therefore what lenders say you’re financially responsible for). Be aware of the possibility of missed debt payments and changes in your credit utilization rate after a divorce. And if you want to take an extra precaution, you might consider freezing your credit for a while.
Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.