Your credit score is used for everything from renting an apartment to getting favorable rates on a car loan. Unfortunately, the wrong decisions during a divorce can tank this important indicator. To protect your finances, you need to fully understand the way divorce will change your credit rating.
Before getting into all the details of divorce and your credit score, it’s worth clearing up a few misconceptions. Despite what you might have heard, your credit score won’t automatically drop when you get divorced. Credit scores are created by three credit reporting bureaus. The way they calculate scores is complex, but your personal life and legal status have no bearing on the result.
Instead, scores are made up of five factors:
Now that you know the basics of how a score works, it’s easy to understand why a divorce might affect yours. Though it does not directly change your score, divorce does indirectly impact it. All the financial changes often make a credit score dip. Some people do manage to get through divorce with no changes to their score, but a slightly lower score is still common.
The first way that divorce changes your score is by requiring you to apply for new credit. When you do things like getting a new credit card in just your name, this counts as opening a line of credit. You might also find yourself needing to do things like buy a new car or new home which will require further loan applications. Unfortunately, if you apply for a lot of credit all at once, your score will drop.
Credit scores also tend to drop because people may not be able to make all their payments during a divorce. It’s easy to get distracted and let some payments lapse. You can also run into problems if both spouses think their ex is handling a joint bill. In some cases, financial challenges may lead to an inability to pay bills. If you’re still waiting on your divorce lawyer to get you alimony, you might not have money to pay off some debt. Until you get your finances all figured out, skipped payments will lower your credit score.
Sadly, some low credit scores can be intentional. If your ex is feeling malicious and is aware of how credit laws work, they might try to take advantage of them to harm you. They may do things like lock you out of accounts and then refuse to pay them or even fraudulently open a new credit card in your name. This is a form of financial abuse, and it is something divorce courts will take very seriously.
Even years after your divorce attorney helped you finalize your divorce, it can still have an impact on your credit score. This can happen due to the way creditors view joint debt. Any debt that you and your spouse took on together is joint debt. This sort of debt can be for things like a family credit card, a mortgage with both your names on the loan, or a car payment you shared.
During the divorce, your family lawyer will draft an agreement about which person pays which debt. Your divorce decree can end up covering such matters as ceding the car title to your ex if they take over responsibility for the debt. Unfortunately, creditors are not legally required to respect a divorce debt split. Even if the court ruled that your ex must pay the debt, the divorce decree doesn’t get rid of the original loan you signed.
If your ex quits paying the bills for your joint debt, their creditors can tell credit reporting bureaus that you’re not paying your debt on time. Not only will you have creditors coming after you, but your score will also drop. These sorts of disagreements can be cleared up, but it takes time. Your divorce lawyer might have to go back to court with you and request that the court garnish your ex’s paychecks to pay the debt. There is also a chance that you may have to sue your ex to recover the money you put toward the joint debt. While all these legal disagreements are happening, any unpaid joint debt can harm your score.
Fortunately, there are a lot of things you and your divorce attorney can do to protect your credit score. The most important thing to do is act fast. By talking about the financial side of divorce with a professional, you can avoid making mistakes that lead to credit problems later on.
Your family law attorney will usually recommend you and your ex make a note of all debts and draft a plan to pay them. You will need to try to close all joint debt accounts as soon as possible and make sure any accounts you leave open get paid on time.
If your ex-spouse is not willing to work collaboratively, there are still many helpful steps your family lawyer can take. They can petition the court to temporarily freeze accounts until your finances can be sorted out. You can also put a hold on your credit so your ex cannot take out any more debt in your name.
During the property division process, your family law attorney can help you find an equitable way to handle joint debts. Ideally, you should never take on any debt that you cannot pay. Through creative negotiation, you may be able to get your ex to take responsibility for the debt in exchange for things like a larger portion of a joint savings account. Once you reach an agreement that you’re satisfied with, it is important to get your name off of any loans. Requiring your ex to refinance the debt, so it is fully in their name, helps keep creditors from bothering you.
Finally, you can further protect your score by monitoring your credit after your divorce. Keeping a close eye on your credit report will help you identify any problems that could cause your score to dip. Always keep in mind that if your name is attached to any loan, it can impact your score no matter who spent the money or who agreed to pay the debt.
By making the effort to protect your credit score, you can make it easier to plan for your bright, new future. At Lawrence Law, we are dedicated to defending our clients’ finances. We will do everything we can to help you get a fair result and avoid credit problems in the future. To schedule your consultation with a New Jersey divorce lawyer, call us at 908-645-1000 or fill out and submit our contact form. We have offices in Watchung and Red Bank.
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