There’s so much going on during a divorce that it’s easy to overlook things that aren’t problems yet … like your credit score.
Getting a divorce doesn’t do anything to your credit by itself, but sometimes the aftermath can damage or destroy your credit. That can affect your finances for years to come, and make it much harder for you to:
- take out loans (like if you need to buy a car)
- get lower interest rates on credit cards
- rent an apartment
- set up utilities accounts (like electric or cable)
- get a cell phone contract
- get a job, or
- start a business
But you can prevent those hardships by taking action before your credit takes a hit.
Here are seven steps you can take now to protect and strengthen your credit:
- Check your credit report right awayNot sure of your credit rating? Afraid someone stole your credit card number? Thinking about buying a house? These are just a few of the reasons you need to check your credit report.When you’re getting divorced, though, there are extra reasons. For one thing, your credit may be tied to your husband’s credit – and if his isn’t good, that may affect yours. Activity on every joint account you have goes into both of your credit ratings. And if your husband wasn’t always great about paying those bills on time, your credit score took a hit, too.
On top of that, you may not even be aware of all the joint accounts you have. Reviewing your credit report will spell out every single loan and credit card that bears your social security number.
You can get a free copy of your credit report from each of the three national credit-reporting agencies every year. The best way to do that is by ordering them from annualcreditreport.com – the ONLY website that’s legally authorized to deliver those free credit reports. You need to enter some pretty sensitive personal information to get the reports, so make sure you go to this trustworthy site.
If you’re wary of using the Internet for this, or don’t have access to a secure Wi-Fi connection, you can also call annualcreditreport.com for your free credit reports at 1-877-322-8228.
- Change your name before you apply for new creditIf you’re planning to legally change your name, do it before you start filling out credit applications. This way, all of your new accounts will be set up in the name you’ll be using from now on.
This won’t change an existing credit rating, at least not initially, because those are based on your Social Security number. But it can help make sure you’re building better credit in your name.
- Apply for solo credit accountsGet credit in only your own name. That helps establish you with a separate credit identity – even though activity from your joint credit with your husband still shows up on your credit report.
When you don’t already have your own credit history (which many women find out only as they’re divorcing), you made need to start small, or with a secured credit card. A secured credit card is backed by a cash deposit – if you deposit $500, that’s your credit limit (you can charge up to $500). You still pay your bill every month, as if that deposit wasn’t there. This will help you start building good credit.
The secret to building strong credit is to borrow (credit cards count as borrowing) only what you can manage to pay back on time. Charging small amounts and paying the bills on time help mark you as a responsible borrower. That improves your credit rating, making it easier to get better loans at lower interest rates going forward.
- Have copies of every joint bill sent to youWhen you have any accounts – whether they’re credit cards, loans, or household bills – in both your and your husband’s names, you could be held responsible for the total balance … even if your husband has agreed (or been ordered) to pay them.
If those bills don’t get paid, or get paid late, your credit score will drop. Regardless of who’s supposed to pay those bills, if your name is on the account, you will have to deal with the credit fallout.
By getting copies of all the bills, you’ll be able to tell right away if payments aren’t being made, and you’ll be able to take immediate action to protect your credit. You may end up paying some bills that he was supposed to cover – but it’s better to do that on your terms than be sued by creditors down the line … and watch your credit score go down the drain.
- Cancel as many joint accounts as you canAs soon as possible, close all of your joint credit card accounts – and do it in writing, including a specific request that they be closed permanently.
You are 100% responsible for any account with your name on it, even if your husband’s name is on it, too. If your ex runs up a balance that he can’t pay, you will have to pay it, or risk destroying your credit.
To fully close an account, the balance has to be paid in full. To do that, the two of you can each pay half of the outstanding balance. If that’s not doable, you can each transfer half (or whatever division you agree to) the balance to a new individual credit card.
If you and your husband are communicating well, talk with him before you take this step. If your situation is more hostile, put it in writing. This is for your protection (and good for your relationship) down the line.
- Remove your spouse as an authorized userIf you have some credit card accounts in your own name, with your husband as an authorized user, remove him. Every dollar he charges with that card will be your financial responsibility.
Tell him directly that you’ve done this – it will save you the inevitable argument (and headache) that will come if he doesn’t know and tries to use the card.
- Sort out all of your joint loansChances are, you and your husband took out loans together for your house and your cars. These can be harder to untangle than credit cards, but they need to be handled.
The mortgage is the biggest debt. And the only way to remove your or his name from it is to pay off the loan. If you plan to sell the house, the proceeds go first toward paying off the mortgage. If one of you plans to keep living in the house, the original mortgage will need to be refinanced. This is crucial: The consequence for not making regular payments on the mortgage is foreclosure, and a major blow to your credit score. The mortgage lender does not care what your divorce (or separation) agreement says, or who’s supposed to be making the payments – they only care about who’s name is on the loan documents, and whether they’re getting paid.
Be aware: Having your name taken off the deed to the house and filing a quit-claim for the property doesn’t take you off the mortgage. Those are two separate things. If your name is on the mortgage, even if you no longer have any stake in the house, you are liable for the loan.
The same holds true for all of your joint debt (car loans, student loans, home equity loans, and so on), whether you’re listed as a borrower or a co-signor. Regardless of what your divorce agreement says – even if it spells out that your husband will make all the car payments – the lender considers you responsible if your name is on that loan. If your ex defaults on any loan that your name is on, you can be sued … you can be held responsible for interest and penalties … collection agencies will come after you … and your credit will take the hit.
Even if you and your ex get along great, and he is the most reliable and trustworthy person you know, circumstances change. He could be disabled in an accident, he could lose his job, or he could die – and you would be suddenly responsible for all of those loan payments, whether or not you could afford them.
By taking all of these steps to defend your credit, you’re also protecting your future financial well-being. And that will go a long way toward creating a better life for you and your kids.