Divorce is downright difficult. Let’s face it — it’s a significant life change that no one has a roadmap to. What makes it more difficult? Your tangled finances with your now ex-spouse and figuring out how to untangle them (while protecting your credit score).
While there’s no roadmap for divorce, there are ways to protect yourself financially. If you’re wondering — how does divorce affect my credit score? Not to worry, we’ve got you covered.
How does divorce affect your credit score?
It’s important to note that divorce itself and your marital status does not affect your creditworthiness. However, there are several side effects of divorce that may affect your credit score. These include:
A reduction in your household income after divorce.
You or your ex-spouse miss payments on joint accounts.
Your ex-spouse has access to your credit accounts and racks up debt in your name.
Even though marital status is not used to calculate your credit score, any number of financial complications can impact your credit score and be reflected on your credit report when you get a divorce.
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1. Deal with joint debts first
The first financial item on your divorce checklist should be understanding which credit accounts are jointly held or your ex-spouse may have access to. You don’t want to have to repair your credit score because your ex-spouse couldn’t care less about their credit history and stops paying the bills.
Here are a few tips to get you started:
Deal with joint debts ASAP. Cut financial ties as soon as you know divorce is coming.
Review your credit report and make a list of all jointly held accounts. If you can, close accounts and ask that they not be re-opened.
Remove your ex-spouse’s authorized user status from credit cards and lines of credit. Otherwise, if your divorce turns nasty, they could run up a balance that you’ll have to pay for.
In an ideal situation, each ex-spouse should move debts they are responsible for into their name and transfer credit card balances if necessary.
If you have joint credit accounts with your ex-spouse such as lines of credit, credit cards, mortgage, etc., they still need to be paid. If your divorce goes to court, a judge will rule on which spouse has to pay which bills after the divorce.
2. Stay on top of your finances
If you’re not already on top of your credit score and report, divorce is prime time to get a copy of your credit report. ASAP. That way, you’ll be fully armed with the right information when you head into a courtroom to see a judge or lawyer about who has to pay for what and who gets spousal alimony or not (yes, this is a thing).
Understanding where all your earnings come from, all the bills you and your spouse pay, where all your savings and retirements accounts are, and more will help you when it comes time to separate your finances.
How does all this financial information help you?
You’ll be able to keep track of whether your ex-spouse is paying his or her share of the bills. It’s important because if your name is on that bill, your credit score will take a nosedive too.
3. Adjust your lifestyle
If your divorce was messy, you might have spent a significant amount of money on a lawyer, causing you to move into high credit usage or worse, it may have left you filing for bankruptcy. Or, if your ex-spouse was the primary earner in the household, you may have trouble covering the bills on your own. Either of these scenarios can hurt your credit score if you miss payments, make late payments or have high credit usage.
Payment history is a big deal for your credit score. Failing to make the requested payment on-time can cause a drop in your credit score. If your new lifestyle is causing you to miss payments or use credit to supplement your income, you’ve created a recipe for credit score disaster.
High credit usage — a balance to limit ratio over 30% — can reduce your credit score and limit your options when it comes to financial products and receiving better interest rates.
When I went through my divorce, I knew I couldn’t afford to pay a mortgage and keep up with my line of credit payments. I had some tough lifestyle and financial decisions to make. I chose to move in with family, sell some of my stuff, trade my car in for a budget-friendly option, and change jobs to earn more. When we sold our home, my ex and I paid off the mortgage, and the remaining cash I received went straight to paying down my line of credit.
The key to a smooth lifestyle change is to earn more and spend less; think about taking on extra paid projects at work, freelancing on the side, or selling stuff you don’t use. Work to spend less by removing expenses that are unnecessary or don’t bring you happiness; like a large data plan for your mobile, digital subscriptions like Netflix, Spotify, or other apps, cable TV, etc.
The bottom line
Divorce doesn’t have to be damaging to your credit. If you work to minimize the negative impact on your credit by making sure joint bills are paid on time, stretching your budget to make sure your bills are paid on time and removing your spouse from accounts where you can, you’ll be able to reduce the impact to your credit. And the best advice? Stay as civil as possible. The better your post-divorce relationship, the less likely your ex-spouse will be to trash your credit.
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About the author
Michelle Summerfield is a professional blogger and the creative director of The Classy Simple Life, a lifestyle design blog aimed at the 40+ woman. The blog started in 2012 and developed into a professional blog in 2017. In addition to documenting her journey to a simpler life, she covers topics such as money management, health + wellness, beauty, solo travel and thoughts on being a creative entrepreneur. Her work has been featured in The Globe and Mail, Toronto Life, and the CBC. To learn more about Michelle, visit her website here.