Divorce is a grim reality that forces those navigating it to make several adjustments to daily life. However, divorce doesn’t just affect relationships; it can also impact your finances and even your credit score. That’s why it’s essential to take measures to protect your credit in a divorce so that you can safeguard your financial future.
Below are a few ways to protect your credit and minimize financial setbacks after your divorce, as shared by A and N Mortgage Services, one of Chicago, IL’s trusted mortgage companies.
How a Divorce Can Affect Your Credit As Things Unfold
Divorces require you to make several adjustments to your lifestyle, which may include altering how you budget for your financial commitments. Understanding how a divorce can affect your credit will help you take measures to protect it before issues arise.
Below are some common ways a divorce can affect your credit:
Income Changes
A divorce can significantly alter the household’s monthly income if both spouses work to pay for housing, food, and other essentials during the marriage. It could reduce what you have at your disposal to a fraction of what it once was. With child support and alimony to further complicate matters, you must take swift action to keep up with the drastic financial changes.
Joint Debt Payments
Married couples may have joint accounts on each party’s credit report. If one party fails to make payments on loans, credit cards, or mortgages, it will adversely affect the other party’s credit and their own. Many people will also accumulate new debt after a divorce, which will still reflect on their ex’s credit report without them knowing.
Joint Credit Card Closing
Closing a joint credit card can increase your credit utilization ratio, the total credit percentage attributed to your account. For example, closing a credit card with outstanding balances on other cards will decrease your available credit, escalating your overall credit utilization ratio.
Experts advise maintaining a credit utilization ratio below 30% to ensure a favorable credit score. Closing a joint credit card will negatively impact your credit score if you relied on your spouse to make the debt payments or rode the coattails of their optimal credit standing. After the divorce, your responsibility solely falls to paying off debts and maintaining a good credit score.
Additional Read: Ways To Improve Your Credit Score
Debt Collectors and Creditors Don’t Abide by Divorces Decrees
Judges issue divorce decrees after every divorce proceeding to establish the terms of debt responsibility, community property shares, child support, and alimony. However, creditors typically don’t abide by divorce decrees and have their own ways of collecting debt.
If you aren’t aware of these policies and procedures, it’s best to investigate your upcoming commitments before things get complicated.
Knowing How To Protect Your Credit in a Divorce Could Make All The Difference
Although divorces require you to jump through several hoops, you must take every precaution necessary to protect your credit during and after the process. The following may help:
Close All Joint Accounts as Soon as Possible
Since your ex-spouse’s financial decisions affect your credit utilization ratio, you must close all joint accounts immediately. Closing these accounts once the divorce is in motion will safeguard your credit utilization ratio if your ex does any of the following:
- Defaults on a loan
- Misses a payment
- Makes a late payment that incurs penalties
You will still be responsible for these issues as a joint account holder. Closing all your joint accounts as soon as possible could protect your credit in a divorce.
Alert Creditors About the Divorce
Once you close your joint accounts, contacting your bank, lenders, and credit card company is best to notify them about your divorce. In a certified letter, explain that you will not be liable for debt collected after the letter’s send date. Also, tell them to set your account to inactive.
You must also remove your ex-spouse from any accounts they have access to before they acquire more debt. Otherwise, they’ll leave you with expensive repayments and jeopardize your credit.
Request Monthly Statements
It’s best to ask for monthly statements on accounts with outstanding balances or ones you couldn’t close to ensure you stay on top of your finances. Keeping track of payments and account activity helps preserve your credit after the divorce.
Don’t Focus on Fighting for the House
Many divorcees fight to stay in their marital home, emphasizing the issue when it’s often better for both people to move on. This legal strategy may have been popular several decades ago, but modern homes commonly carry significant debt that people can’t pay off with a newly single income. The last thing you want to do is take on home payments you can’t afford when you can find a better place to stay.
Stay Up-to-Date with Your Credit Reports
Staying up-to-date with your credit reports will help you identify problems or errors from the joint credit you shared with your ex-spouse. Sometimes, desperate or spiteful ex-spouses steal their ex’s identity or open joint accounts after the divorce, causing multiple serious issues that can degrade your financial means. Regularly checking your credit reports will alert you to such measures, allowing you to take swift action before the situation spirals out of control.
You can also hire a professional credit monitoring company to help you assess your reports for peculiarities, making it much easier to protect your finances.
Freeze Your Credit Files
If your ex already has access to your credit accounts and you believe they may use them irresponsibly, contact your bank and freeze the account or add a fraud alert. It prevents vengeful shopping sprees that leave you with the bill and keeps your credit intact. It will also prevent them from opening new accounts or using your Social Security number for their own benefit.
Take Civil Court Action if Necessary
Ex-spouses may refuse to pay their debt, even when ordered to do so by the divorce proceedings. Although no one wants to pay their ex’s debt, there are occasions where it’s best to do so to preserve your credit rating. However, once you pay off that debt, you might want to take your ex-spouse to civil court for failing to follow the court order.
This might be a last resort when all other measures fail. Most people want to move on from their divorce once everything settles, making this unnecessary.
Additional Read: Expert Mortgage Advice: What to Do After a Divorce
Choose a Reliable Mortgage Service That Puts Their Clients’ Best Interests First
Mortgage services can also help you to maintain or improve your credit as you navigate a divorce. If you need an experienced mortgage banker, A and N Mortgage Services can help. They can provide more tips to help you protect your credit in a divorce while helping you find qualified lenders for your debt management needs as you move forward.
Contact A and N Mortgage Services at (773) 305-LOAN today to see what our experienced team can do for you!
