Repairing Credit After Divorce
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Meta Description: Learn how to protect your credit and address any financial issues caused by divorce. We can help you remove negative items and increase your credit score.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law's editorial disclosure for more information.
Divorce can affect all areas of an individual’s life, including friendships, health and well-being and finances. Even an uncontested divorce can be a drain on an individual’s income and savings. According to Business Insider, the average cost of a divorce in the United States is $15,000, which includes filing fees, mediation, serving papers and retainers. On top of these attorney’s fees, individuals may also need to pay for moving costs, securing a new place to live, basic necessities and paying off shared debt.
Because expenses are often split, there’s a potential chance for damaged credit unless both individuals agree to communicate and reach an agreement. In even the best cases, credit can be damaged and require some work once you’re back on your own. Lexington Law can provide help with credit repair after divorce.
How can divorce affect your credit?
Divorce doesn’t affect your credit score directly, but the indirect effects can have lasting issues on your credit score. Going through a divorce can result in changes in household incomes, expenses and even current savings, so splitting up joint accounts, accessing your disposable income and knowing how to protect your credit score can be huge factors in keeping your finances in check. In the event of negative items, it’s important to address these issues immediately to prevent further damage in the future.
Joint accounts
A divorce decree often outlines which debts you’re responsible for. While this details what debts you and your spouse agree to pay, it doesn’t mean the account holder will excuse you from the debt agreement. This means any joint credit accounts, including those that go past due or unpaid, will negatively affect your credit. If your ex is assigned to take care of a specific credit card or installment account and is late on payments or doesn’t pay, this history will show on your credit report.
In some cases, an angry spouse may try to stick with the current balances on joint accounts or refuse to pay for any debts with your name. This can have a significant impact on your financial health and credit score.
Credit utilization
According to experts at Experian, a low credit utilization is the best for those trying to maintain a good credit score. When going through a divorce, it can often be tempting to live off credit, which can maximize your credit usage. Check your balances regularly and make sure you keep your utilization low.
Because you won't have your spouse's income to show when applying for new credit, you may find you don't qualify for new credit, can't secure prime rates or, when you do get accepted, are approved for lower credit amounts.
Income
Divorce splits your family income in two, which results in lifestyle changes. This is especially true if your spouse was the primary breadwinner. This change in income can often make it harder to pay credit obligations on time, which can result in negative marks on credit reports.
4 tips for protecting your credit after divorce
If you’ve maintained a solid credit history and good credit throughout your marriage, it’s possible to take steps early on to maintain this good standing.
- Get organized. Start by making a list of all accounts, including joint bank accounts and credit obligations. Try to sit down with your ex, either through mediation or through personal contact, to discuss how the bills will be divided and who’s planning on assuming the debt.
- Come up with a plan for your accounts. Ideally, you’ll want to pay off and close all joint accounts immediately. If you’ve chosen to split these accounts and continue to pay, it’s important to continue making payments on time. Make a new household budget and stick to it to help ensure you set aside money for these accounts.
- Talk to your creditors . In some cases, you may be able to speak to your lenders to let them know you’re going through a divorce and need modifications to existing accounts. A loan modification is the term used to describe a change in an existing loan term. Loan modifications can reduce interest rates or convert a variable rate to a fixed interest rate. They can also include a capitalization of specific amounts, meaning sometimes a bank or credit holder will add past due amounts to the total balance of the loan, which gives you longer to pay and catches the account up to date. Mortgage lenders may also be willing to change or extend the terms of a loan from 30 to 40 years, which lowers the monthly mortgage payment, making it easier to handle. If you expect any difficulties paying an existing account, it’s important to reach out to your creditors ahead of time before negative items have been placed on your account. Your reaching out early may make your lender more inclined to help.
- Watch your credit reports. Pay close attention to your credit reports. You can also contact the credit agencies and set up fraud alerts. Fraud alerts simply send you notifications any time a change is made to your credit report. This includes hard pulls, late payments and new accounts. With these fraud alerts, credit bureaus and lenders are required to contact you when anyone attempts to add a new line of credit. If you can’t be reached to verify the account is yours, the application for credit is denied. This is just one way to ensure your ex-spouse doesn’t try to open a new account in your name.
Strategies for repairing your credit after divorce
Rebuilding your credit after a divorce can be extremely challenging and stressful, but there are steps you can take to help you raise your credit score, address past balances and ensure additional accounts aren’t created in your name.
First, be sure to keep your credit utilization low. Create a budget and avoid purchasing items on credit that you can’t afford. Make your payments on time and in full every month to prevent balances from increasing.
In the event you closed numerous accounts during your divorce, open a new line of credit solely in your name. While the initial hard pull can temporarily affect your credit score, over time the new account can help you establish new and recent histories. In cases where the divorce has damaged your credit score, try getting a cosigner or apply for a secured card that can help you rebuild your credit.
Finally, seek out a credit rebuilding service to help you address any issues the divorce caused. At Lexington Law, we can help remove negative items and inaccuracies from your credit report that lower your credit score. We have several plans to suit every budget and individual needs.
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