How Your Divorce Could Affect Your Credit Score

How Your Divorce Could Affect Your Credit Score

Divorce is a stressful and emotional time in anyone’s life, but it can also have significant financial implications, potentially affecting your credit score. Credit scores are crucial because they impact your ability to obtain loans, credit cards, and other financial products. A good credit score can also affect your job prospects, rental applications, and insurance premiums. Therefore, it’s essential to understand how your divorce could affect your credit score and what you can do to mitigate any negative impact.

How should couples address joint savings and checking accounts?

One of the main ways that divorce can affect your credit score is through joint accounts. You are responsible for making payments if you have joint credit cards, loans, or mortgages with your spouse. If one of you misses a payment or defaults on the account, it can negatively impact your credit scores. 

According to Experian, any personal debt accumulated is your responsibility, however, it benefits both partners to close joint accounts, pay off outstanding balances, and divide any remaining debt. Debt can be a complicated and contentious process, but it’s vital to prioritize resolving joint accounts to protect both of your credit scores.

Another way that divorce can impact your credit score is by creating financial instability. Divorce often involves significant changes in income, expenses, and assets. These changes can make it difficult to manage debt and make timely payments. Additionally, divorce can be expensive, and legal fees, moving costs, and other expenses can add up quickly. You must manage your finances effectively during a divorce to avoid missed payments, defaults, and a lower credit score.

Should you apply for new credit cards after divorce?

Divorce can also impact your credit score by reducing your available credit. If you and your spouse had joint credit cards or loans, your credit limits are significantly lower after the divorce. Reducing available credit may impact your credit utilization ratio, an essential factor in determining your credit score. Your credit utilization ratio is the amount of credit you use compared to the amount available. 

If your credit limits are lower, your credit utilization ratio may be higher, negatively impacting your credit score. To mitigate this, you may apply for new credit in your name or ask your creditor to increase your credit limit.

If you are given responsibility for a joint credit card with a high balance, you may need help to pay off the debt on your own. If you miss payments or default on the account, it can negatively impact your credit score. To prevent this from happening, negotiating a fair and realistic settlement during the divorce process is one available pathway. You may need to work with a financial advisor or attorney to ensure you are not assigned an unreasonable amount of debt.

Are you getting divorced and worried about your credit? Contact us today.

Divorce can have significant financial implications, including potentially affecting your credit score. Understanding how divorce can impact your credit score and taking steps to mitigate any negative impact is essential. Necessary actions include:

• Addressing joint accounts.
• Managing your finances effectively.
• Increasing your available credit.
• Negotiating a fair and realistic settlement.

By prioritizing your credit score during a divorce, you can protect your financial future and ensure you have access to the credit you need. Contact us today if you are going through a divorce and need guidance on credit, debt, and more.