In this post, we’ll go over how divorce can impact credit scores, how you can repair it, and if you should look for the help of credit repair companies in Austin, Texas.
How Divorce Impacts Your Credit Score
The fact that you’re divorced doesn’t directly impact your credit score or credit results, but the financial issues that come afterward can. Here are some factors that can cause your credit score to decline:
Debt Grew Because Your Ex Was an Authorized User on Your Credit Card
This is a common problem that happens in more hostile divorces. For instance, if your ex is spiteful, they could try to punish you by using your credit card to make large purchases in your name or by accessing your bank accounts.
If your former spouse is an authorized user, they can do this legally. What’s more–they won’t be liable for repayment. To be frank, they can spend as much money as they want without bearing its consequences.
Your Joint Accounts Are Unpaid
Married couples usually have joint accounts; you and your spouse may share a credit card, mortgage, car loan, or other forms of debt. The debt doesn’t go away after separation because you are both responsible for paying it off.
Paying For Bills May Be Tougher
It’s no secret that life after divorce is tough. During that time, you may have trouble keeping up with all the bills you have accumulated while paying for living expenses, especially if your ex was the main income earner when you were married.
As a result, this can damage your credit score if there are any late or missed payments. Because your credit history is the most important factor in your credit score, it would be wise to make payments on time, every time.
You’re Using Your Credit Card to Pay for Costs
If you’re using your credit cards to substitute for income (or lack thereof), you could end up with a lower credit score. You must ensure that your credit utilization ratio is less than 30% at all times to protect your credit rating.
Paying for legal expenses with your credit card could also affect your credit score. Although every divorce comes with fixed costs, like filing fees, other costs vary wildly. Lawyer’s fees depend on your particular situation and the degree to which the issues between you and your ex are contested. For example, if you’re dealing with property or custody disputes, the divorce might cost thousands of dollars—and most people don’t have that kind of cash on hand.
Your Credit Limit Decreased
Creditors have the right to lower their credit card limits. This could happen after you and your former spouse separate, especially if the creditor discovers that you’re making less money.
You’re Refinancing Your Home
Refinancing can be one of the worst things you can do to deal with financial issues after a divorce. If both you and your ex-spouse are on the house deed, then you may have to refinance the mortgage to remove one of the names from the loan and the deed. If you decide to refinance the mortgage in your name, then the bank or lender will look at your personal credit score and income to determine if you qualify for the loan on your own.
Mortgage applications also conduct hard inquiries that might cause temporary dips in your credit score. Plus, refinancing the whole home in your name may significantly affect your income-to-debt ratio and your ability to get credit in the future.
You’re Dealing With Undisclosed Debts
Through the divorce process, you’re required to disclose existing debts. If your ex doesn’t disclose a debt, it can negatively affect your credit. There have even been incidents where exes open new accounts in their partner’s name to purposefully damage their credit–it’s usually too late by the time the partner realizes what’s happening.
If you have a joint account, your ex might still use it during the divorce and increase your debt. The best way to deal with this is to close any joint account you have, or at least remove your name from it.
Get Removed as an Authorized User
Getting removed from your partner’s accounts as an authorized user can affect your credit score. Even if you’ve never paid a penny toward the bill, just being an authorized user on the card boosts your credit score. So, getting removed as an authorized user could significantly decrease your credit score.
Nonpayment by One Party
In many cases, exes don’t pay their portion of a joint debt after a divorce. Unpaid bills and untimely payments cause credit scores to nosedive. This situation can create quite a pickle–you’re caught between whether to pay your exes bill or take the credit hit due to the nonpayment.
If you get caught in this situation, look for legal advice. If your divorce decree has a payment plan, you might be able to get your ex to pay the bills to prevent your credit rating from plummeting.
Fortunately, there are several ways for you to protect your credit score after a divorce.
How to Fix Your Credit Upon Separation
You need to be proactive about your credit score, as it will not necessarily be there during your divorce. This way, you can protect your money and make it easier to start your new, independent life.
Here’s what you should do to fix your credit score:
- Separate all joint accounts: As soon as you’ve confirmed you’re getting a divorce, either close your joint accounts or switch them to individual accounts immediately.
- Determine which accounts were shared, according to your credit report: Read every line of your credit report for any mishaps and find out which accounts you’re either partially or fully responsible for. It’s quite common for spouses to open accounts in their partners’ names and you need to delete late payments from the credit report.
- If your spouse has access to your account, remove their authorization: If your spouse does indeed have access to a bank account or credit card that is solely in your name, remove them immediately to protect your finances.
- Change your security information: Improve the security of your credit and debit cards by changing their PIN codes and the passwords on sites and apps that link to your bank account. You can also change the security questions, so your spouse can’t easily guess them. If you have moved, change the address so that your credit reports and bank statements are delivered to your new location.
- Change your lifestyle to match your income: Most divorcees, especially those who rely on their spouses’ income, struggle financially to maintain their lifestyles. If this is your situation, cut back on spending. For instance, you should consider moving into an apartment, getting rid of cable, and trading your car for a less expensive model. The best way to know what you can and can’t afford is to make a budget. Give greater priority to your most important expenses and try to stay ahead of payments that could directly affect your credit score, such as credit cards and bank loans.
- Work out an agreement about joint debt payments: Try to work out the specifics of joint debt payments, with or without the help of a divorce decree, and then get the agreement in writing.
- Keep a check on your ex’s payment due dates on joint accounts: If your former spouse doesn’t pay on time, you can make the minimum payment on your joint account and save your credit. Later, you can report the nonpayments to the courts and get your money back.
- Boost your income: You should prioritize earning more and spending less during your divorce. In addition to lowering your expenses, you can earn more money by either working overtime or doing some freelancing on the side. This will also help reduce total loan costs if you need one.
- Freeze Your Credit:One of the best things you can do to save your credit is to freeze your account to restrict access. Neither you nor your partner can access the credit report without unfreezing the account. If you do this, your ex won’t be able to take new loans and drive you into debt until the account is unfrozen. This gives you more control of the situation.
In Conclusion
Going through a divorce is already devastating, but the financial effects and the effects on your credit score can make things a lot worse. The act of getting divorced doesn’t affect your credit score, but the sudden changes in your financial responsibilities and income can result in a drop in your credit score.