How to Protect Your Credit Score During a Divorce
While in the beginning stages or even in the thick of a divorce it’s difficult to make the simple everyday decisions let alone having the ability to make good, sound financial decisions. That’s why it is necessary to have support and guidance by true professionals who specialize in this very subject. Divorce Coach and Expert, Annie Allen says it best, “Frequently women feel as though their biggest asset in the divorce that they relentlessly fight for is their home, when in many cases it is the largest liability. The biggest and many times overlooked asset in your divorce is your credit and credit scores.”
Whether or not you decide to keep the martial house or sell it during your divorce, it’s crucial to protect your credit score, your financial future and preserve your home ownership eligibility. Rebuilding emotionally after a divorce is daunting enough, complicating the matter with rebuilding your credit score and home ownership eligibility can be a grueling experience. It’s important to make sure that you’ll be able to land on your feet financially and won’t be saddled with your soon-to-be ex’s debt.
Understand the harsh reality that the divorce decree does not relieve you from joint debts you incurred while married. You are just as responsible for joint accounts as your spouse is, even when the judge orders your ex-spouse to pay certain bills. You are still legally responsible to make sure every joint account from credit cards, car loans and home mortgages are paid because you promised as an individual and a couple to do so. The credit grantor has the legal right to report any negative information to the credit reporting agencies from late pays to the ex-spouse not paying at all. The grantor can take legal action against you. The grantors and credit reporting agencies do not care what happened to you emotionally they just want the debt to be paid and in their eyes, both parties are equally responsible.
10 Ways to Protect Your Credit During a Divorce
- Consider Hiring a Divorce Coach
It’s easy to make emotional or naive financial decisions while you are going through this challenging time. There are several benefits to hiring a divorce coach. You’ll have someone in your corner to guide and direct you while you are going through one of the most emotionally draining times in your life. They also provide budget coaching to help ensure you don’t end up in financial ruin with your credit destroyed which can takes years to recover from.
- Open Your Own Checking and Savings Account
Your soon-to-be ex can drain a joint checking and savings account and close the accounts down at any time until the divorce is finalized and assets are divided. To keep yourself covered open your own checking and savings account and start depositing your paychecks into those accounts. While you’re at it, make sure that all automatic payments for your own credit cards and your bills are coming out of your own account, so you aren’t hit by late-payment fees once you close the joint account.
- Monitor Your Credit Each Month
It’s important to know where your credit stands. You don’t want to get your actual FICO Credit Score pulled every month as this is considered a “hard-hit” to your credit. A great alternative is to use Vantage Scores, otherwise known as online scores. Keep in mind this is NOT your actual FICO Scores, these scores tend to be much higher than actual FICO Scores. Use these online credit reports to monitor your credit, what is positive and negative such as late pays or collections showing up that you didn’t know about. Pay attention to the body of the report rather than the scores. If something negative does appear on your report address it quickly. We highly recommend reaching out to a professional like a credit coach who can help you identify an actionable plan to repair your credit.
- Take Inventory of Your Properties & Assets
You may need to sell your home and divide the proceeds. This could help pay towards joint debt or refinancing the home to get one name off the mortgage.
- Close or Separate All Joint Accounts
Assess all your joint debts and decide who should be responsible for each. You’ll have to go through every joint credit card account, cancel it and transfer the remaining balance to a card in the name of whoever’s assuming responsibility for the debt. Keep in mind, you still might bare the responsibility to pay existing balances unless the grantor agrees to release you from the debt. Be sure you fully understand the agreement that has been made between you and the grantor.
- Freeze Accounts That Can’t Be Closed
Most creditors won’t let you close an account that has an outstanding balance. In these instances, you should request that a freeze be placed on your account to prevent future charges. Even though you will still be jointly responsible for the existing balance, no further debt can be added to the account.
It is essential you save money during this time. If for some reason your ex is unable to pay a joint debt and your name is still on it, you will need to pay the existing balance to protect your credit so make sure you have the money to do so. Budgeting is a sure-fire way to protect yourself from these types of issues that arise. If budgeting has been a challenge for you, hiring a budget coach is strongly advised.
- Pay All Bills on Time
Until joint accounts are separated, neither of you can afford to miss a turn paying bills. One-thirty day late payment can take up to 50, 80 or even 100 points from your credit. This can take two years or more to recover and stays on your credit profile for up to seven years. During divorce negotiations, pay at least the minimum payment on all joint accounts until a more suitable payment schedule has been established.
- Establish Your Own Credit
Get a credit card/cards in your name. If you need to start off small with a small credit limit that’s ok – it’s a step in the right direction. Keep your new credit card balances at 30% or below the limit and pay your new bills on time. Don’t run your debt up beyond what you can afford to pay! Ideally you want three to four credit lines open simultaneously. For example, two credit cards and one to two installment loans which is a personal, auto or home loan. You can also talk to your local bank about getting a CD credit builder loan.
- A Credit Freeze May Be Necessary
In extreme cases you may need to do a credit freeze. A credit freeze allows you to restrict access to your credit report. This makes it more difficult for someone to take credit out in your name, whether that is an anonymous identity thief or a separated spouse. This stops new credit from being acquired because most creditors require proof of a credit report before issuing new credit. Many will not extend credit if they are unable to see the report. A credit freeze does not affect your credit score. Keep in mind, if you want to conduct certain transactions that may require access to a credit report such as applying for a new job, renting a new place or purchasing insurance, the credit freeze can be temporarily lifted for this purpose.
Tips to Avoid Common Mistakes During a Divorce
Most people don’t get into a marriage thinking it will end. The good news is according to the Wall Street Journal and TIME Magazine, divorce rates are going down and we have Millennials to thank for that. Divorce is one of the most difficult things an individual will experience in one’s lifetime. It’s a grueling time and often brings out the worst, in even the best, well-intended people. If you are contemplating divorce, this may serve as a good checklist to help you avoid a few common mistakes.
- Prepare Yourself and Be Patient
Preparing for a divorce may sound insensitive. However, not being properly prepared is the quickest way to make huge mistakes and become overwhelmed. Understand divorce is one of the most counter-intuitive processes you will encounter in your lifetime. It may be tempting to make an emotional decision and feel as though you must leave and get out of the marriage immediately, left feeling like you’ve been as patient as you can be and can’t take another day. Unless you are in an abusive situation, take your time and plan accordingly. A few months to a year of planning and getting things in order can save years of pain and avoidable struggle. The right tools and preparation can save you time, money and heartache.
- Don’t Misunderstand Your Divorce Attorney’s or Judge’s Role
Remember, no one will care more about your life, your divorce, your family or the outcome more than you will. The attorney you hire is NOT a therapist! Attorneys are not trained to deal with emotions. Attorneys don’t want to hear about the arguments you are having with your soon-to-be ex, they are not there to hear about how you feel, or what a jerk/cheater/clueless spouse you are leaving. Divorce attorneys are expensive, using an attorney in the proper way will get you better results than using them for duties beyond their scope of work. In addition, don’t expect the court system to give you emotional justice. The judge is not looking for the “good-guy” or bad-guy” in the marriage, the judge’s job is to follow the law and decide on the outcome of your case. They don’t know you, your child/children or the entire situation. Do your best to settle out of court.
- Hire a Team of Divorce Experts
Using divorce experts properly will save money and give you better results. Having a divorce coach, lawyer, therapist, credit coach and financial adviser by your side is ideal. A divorce coach is a great place to start and many times overlooked. A divorce coach will help prepare for the journey of divorce, provide pre-legal advice, give a marriage assessment (decision to work on the marriage, separate or divorce), along with a network of professional divorce experts to refer you to. This network of experts will help keep you organized by compiling all necessary personal and financial information in one place, clarifying legal terms, support (a thinking partner) and assist with making rational decisions when emotions are running high, provide guidance to keep credit and financials intact. Following a divorce, the divorce coach can help you envision your life post-divorce by helping you establish a vision for the future by setting both short-and long-term goals and identifying activities and interests that can help you rebuild a satisfying new life.
Please note, these are not your FICO scores. This link will route you to our credit monitoring partner to get started. For more pricing information, please visit ReScoreYourLife.com/Pricing.
We help our clients establish their credit by partnering with CreditCardBroker.com. Apply for a credit card that best fits your needs and start building your credit today!