What Effects Divorce Has on Your Credit Score

Effects Divorce Has on Your Credit Score: Divorce may result in a number of financial alterations, including variations in income, expenses, and your ability to save money. Your credit score can be impacted if you restructure your present joint accounts to reflect your newly single status. Effects Divorce Has on Your Credit Score

Collateral harm may occur when finances shift.

Takeaways Important

Financial changes as a consequence of a divorce may have an influence on your credit score.

• If your former spouse is late or misses payments on joint accounts, it can affect your credit score, therefore you should remove him or her from those accounts.

• Paying your creditors on time is crucial to increasing your credit score.

What Does a Good Credit Score Look Like?

Between 300 to 850 are the ranges for credit scores, with higher numbers suggesting better credit. Experian defines a good score as one that is 700 points or higher, and a great score as one that is 800 points or higher. If your credit score is below 700, you might still be eligible for credit cards, mortgages, and other loans, but you might have to pay higher interest rates or meet more requirements.

The steps listed below can help you preserve your credit and keep it in great shape after a divorce.

Credit Card Accounts Should Be Changed

A credit card used by a husband and wife is typically issued in one spouse’s name with the other spouse listed as an approved user. (Most significant credit card issuers won’t provide credit cards to those with joint accounts.) The best strategy to protect your credit score might be to work together to pay off these debts. If you are successful, neither your credit score nor your credit history will be impacted.

Effects Divorce Has on Your Credit Score

It’s imperative to have your name removed from any accounts that your ex is responsible for as soon as possible, if working together to pay off these accounts isn’t an option. If your ex misses a payment or an account in their name defaults, this will preserve your credit history. Likewise, if you still have control over any accounts, you should remove your ex-spouse from the list of permitted users. This will prevent them from amassing a sizable sum on your account. Effects Divorce Has on Your Credit Score

Keep an eye on how much credit you’re using.

If any accounts are closed, you should anticipate a slight decline in your credit score because doing so will affect how much credit you are using. This figure represents the percentage of your available credit that you are now using. Effects Divorce Has on Your Credit Score

If your credit usage rate is 50% and you are only using $25,000 of your $50,000 total available credit (the combined limit of all your credit cards and/or lines), you have a credit utilization rate of 50%. Your available credit decreases from $50,000 to $35,000 if you close or remove your name from a joint account with a $15,000 credit limit. It deducts the amount of debt you still owe from the total amount of credit you are utilizing because you are no longer responsible for that account. Your rate will undoubtedly be impacted by these changes.

Your credit score may drop a few points if your credit utilization rate increases as a result of your divorce, so you should work to reduce it going forward.

Although there is no agreed definition of what constitutes a reasonable credit usage rate, many financial experts recommend keeping it under 30%.

Dealing with Debts that are Shared

Getting your name (or their name) taken off a joint debt with your spouse, like a mortgage or auto loan, may be challenging. The lender will continue to hold both parties legally liable for repayment even though your divorce order should state who is responsible for the debt. As long as your name is on on the loan, if your ex is supposed to pay it off but makes late or no payments, that delinquent behavior will appear on your credit record.

Any joint debts should be refinanced by the party that will ultimately be responsible for the loan. As a result, the other party will no longer be a party to the loan. For instance, you should refinance the present auto loan in your name alone if you still wish to continue paying for your own vehicle. However, if you have a mortgage on your home in both of your names and neither of you can pay it off in full, selling the house may be your only choice. Effects Divorce Has on Your Credit Score

Make a Change in Income Adjustment

After a divorce, there will probably be a change in your income, which could indirectly affect your credit score. The biggest change is going from a two-income household to a one-income home. Even payments for alimony and/or child support might not be enough to make up for the loss. This is especially true for women, who, according to the US Department of Labor, will still only make 82 cents for every $1 made by men in 2021. This issue is referred to as the gender wage gap. Effects Divorce Has on Your Credit Score

You run the danger of making late or missed payments on loans and credit cards when your monthly income is lower, which will also lower your credit score. Even if you are eventually in a position to pay your bills on time, any missing payments may delay the recovery of your credit score.

After your divorce, develop a budget to help you prepare for and make timely payments to your creditors.

Restore your credit score if it has been harmed.

Your spouse’s inability to make payments on time or at all likely caused your credit score to decline throughout your marriage. If that’s the case, it will take some time once your finances are in order for you to rebuild your credit. One of the most essential steps to repairing a low credit score is making on-time payments. It’s imperative to make that payment on time, even if you can only pay the minimal amount due, to prevent further harm to your credit score. If at all possible, make additional payments at any time during the month to help you reduce your debt.

Another way to begin raising your credit score is to open brand-new personal credit accounts in your name. Low credit scores may limit your options to secured credit cards, which call for a deposit that serves as your credit limit. You can be qualified for an unsecured card as your credit rating rises, which you can utilize to keep up your good credit. Effects Divorce Has on Your Credit Score

But don’t go overboard by requesting more credit cards when trying to raise your credit score. To open too many new accounts at once will lower your credit score, even while having a lot of unused credit is good for your credit usage rate. When you apply for a credit card, a hard inquiry is made on your credit record, which somewhat decreases your credit score. The average age of your accounts is lowered by having several new accounts, which could impact your credit score. However, credit inquiries from such lenders are unlikely to lower your credit score if you’re seeking for a new mortgage or auto loan.

Keeping your debt load low may also improve your credit score. Repaying credit cards and maintaining low balances on existing cards will help you increase your credit score because credit bureaus favor people with low credit utilization rates. Don’t quit up if you don’t see results right away because it takes time to restore a low credit score.

A Word of Warning

While attempting to repair or prevent damage to your credit score after a divorce, you could come across several quick-fix solutions. For instance, a credit repair business can offer to repair your credit on your behalf for a certain fee. Typically, it can’t do anything for you that you can’t do yourself. Effects Divorce Has on Your Credit Score

Companies that specialize in debt settlement may potentially offer to settle your debt for less than what you owe. This is not only expensive for you, but it may also lower your credit score if, for instance, the company instructs you to stop making payments while it “negotiates” with your credit card company. Due to the unpaid bills, your credit rating will decrease.

Another choice is a debt consolidation loan, which you take out to pay off all of your credit cards. Since you will probably pay less interest over the length of the loan than you would to credit card issuers, this could be useful. But if you keep using those credit cards after accepting the loan and rack up more debt, you can end yourself owing more money than you did before, making it harder than ever to pay off your debt.

What Effect Does Divorce Have on My Credit Score?

Your credit score is unaffected by the simple filing for or completion of a divorce. Large purchases made by an authorized user on a credit card account or late or missed payments on jointly owned debt accounts may also have an indirect effect. Your credit score will suffer if the payments on a joint account are not made, even if your divorce decree mandates your spouse to do so. Effects Divorce Has on Your Credit Score

Is It a Good Idea to Put My Credit on Hold During Divorce?

It is doable. In essence, a credit freeze restricts who has access to your credit history. This can entail your soon-to-be ex trying to apply for a new credit card or take out a loan in your name. In essence, a credit freeze makes it impossible to get new credit. A credit freeze won’t stop your spouse from making purchases if they already have access to a credit card account, such as as an authorized user.

During a divorce, what happens to my credit card points?

Some credit card reward programs let you divide points with your ex by moving points across cards. One spouse may decide to buy out the other by adding up the points’ cash value. If accepted, you might use points to pay off the card balances, which would be advantageous for both of you while also perhaps raising your credit score when the debt is settled. Effects Divorce Has on Your Credit Score

Final Thoughts

After a divorce, it’s important to regularly check your credit report to make sure there are no mistakes. Each of the three credit reporting companies must provide a free credit report to every consumer once every 12 months. You may acquire your free credit reports from AnnualCreditReport.com. Follow the procedures given by the credit reporting companies if you discover any discrepancies or inaccuracies to have the issues fixed.

Continue making on-time payments, reducing your debt, and checking your credit report frequently to ensure it’s error-free in order to improve your credit score. Even while change won’t happen right away, your perseverance will be rewarded with a higher credit score. Effects Divorce Has on Your Credit Score