Your credit score says a lot about you. It tells potential lenders whether or not you’re responsible and pay your bills on time and whether or not you’re a good credit risk. Unfortunately, many people find that when they get a divorce, their credit score takes a huge hit. A divorce quickly turns into a business deal once it hits the courts, in which case you will need a good lawyer specializing in divorce. The courts don’t care who did what to whom, they are just there to process the paperwork legally and end the relationship. Unfortunately, ending that relationship can give you a huge ding on your credit score if you’re not prepared. Here’s how to prepare your credit score if you’re getting a divorce.
Take Stock
If you’re considering a divorce, always take stock of where your credit score is at. Look into paying off as much debt as possible prior to the divorce so that you’re not stuck with it and so that your credit score won’t take a huge hit.
Know what you owe and who it’s owed to. This may require pulling your credit reports before you make any move to file for divorce. Once you know what is on your credit report, you can make a plan to take care of it so that you’re not stuck with bills that aren’t technically yours.
While it’s not always possible to do this, in some cases it can be done. By paying things off quickly before the divorce you’re far less likely to take a huge credit score hit nor are you as likely to get stuck with huge bills that aren’t necessarily yours.
List Your Personal Debt
Take the time to list out the bills that are yours personally. Perhaps it’s a store credit card or a revolving credit account. Maybe you have student loans or even a car loan or a mortgage. Don’t open new accounts until after the divorce is final.
This way you won’t have to worry about your ex-being on the account. Many community property states have an issue with this and even years down the road an ex may show up on an old account that you thought you’d removed them from.
Larger debt, such as car loans and mortgages, may have to be determined in the courts as to who owes them. Other debts may be easier to determine without having to do so in court. Many people opt to seal the house and the car to make sure that they’re not stuck with the debt for these particular expenditures.
Adjust Your Lifestyle
If you’re living in a two income household, this is going to drastically change with your divorce. Prepare by adjusting how you spend your money, how you pay your bills and your living situation. You may have to move to a smaller house that is less expensive, you may have to sell the car and buy something less expensive to maintain.
There are many lifestyle changes that you may have to consider including downsizing, taking a part-time job to help make ends meet, getting rid of your more expensive cell phone services and opting for a less costly option, changing your television viewing habits by cutting the cord and going with less expensive services and more. All of these little changes can really add up to huge savings and help you to stay on a smaller budget.
The divorce itself isn’t what is hurting your credit score, it’s whether or not the bills are being paid on time. If you can’t afford something, don’t do it. It’s that simple. Even if that means that you’re going to have to work harder or take a second job for a time. It won’t always be like this and given time you’ll come through it shining.
Who Is Responsible?
In most divorces, the judge will determine who is responsible for the debts. Usually, these will be divided between the two parties and the judge will declare that each spouse is responsible for specific debts.
Unfortunately, that doesn’t mean that the responsible spouse is going to pay the debts that they are assigned. If you were married when the debt was incurred until that debt is paid off, regardless of what the document the judge signs states, you are still going to be affected by that debt.
If your ex is supposed to pay a specific debt, stay on top of it and make sure they’re paying, or your credit score is going to take a hit. This may mean that you have to pay it and demand the money back from your ex or it may mean that you have to write it off entirely and pay it without ever being reimbursed.
Protecting Your Credit
Once your divorce is final, you’ll want to make sure that all of the credit that is being reported is in your name only. To do this, you’ll need to take your ex’s name off of everything or completely close an account and open a new one in your name only.
Maintain your payment schedules and stay on top of making payments on time. Potential creditors look at a number of factors when determining whether or not to give you credit. Payment history, how long the account has been open, and other factors will all work together to determine your credit score. In the first year after your divorce, your credit score may fluctuate for a while as it’s adjusted to these changes.
Budgeting
You’ll have to set up a new budget once your divorce is final. Modify the expenses and reduce costs wherever possible. Prioritize your expenses and remember that you want to pay as much as possible on debt at all times until you manage to reduce it to virtually nothing.
If your stuck paying off joint debts sever all of your financial ties with your ex as quickly as possible. If you see the divorce looming and haven’t yet filed, pay these down first, before the divorce if you can to avoid being caught in the credit loop.
Then close these accounts in writing and ask the creditor to not reopen these accounts in both of your names. Remove all of the authorized user statuses as well to avoid their running up the bills. Keep copies of all documentation. Don’t trust your ex to make these changes, do it yourself to ensure that they are all done.
Make sure that you keep copies of everything in a file folder or an envelope so that if you need to prove something to a potential lender you have it at the ready. With proper planning and care you can have a higher credit score once your divorce is final.
