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How Divorce Can Ruin Your Credit

Category: Index Content Published: Friday, 30 October 2015 Written by Admin

Divorce Can Be a Credit Nightmare


If you are considering or in the process of divorcing your spouse, keep in mind the credit damage that you could potentially suffer, which may not be the direct result of the divorce itself, but may still occur. No doubt, your credit report does not include your marital status nor does your credit report depend on it. However, the divorce process often gives rise to financial issues involving joint credit accounts and these issues can impact your credit history and scores.

There are several different ways in which that divorce can be a credit nightmare, such as:

When Your Joint Bills Go Unpaid

Many divorcing couples have joint credit accounts, such as for credit cards, mortgage, etc., and it is always best that both spouses settle those accounts while the divorce is still underway. Usually, the judge rules what each spouse has to pay for after the divorce, but it is still important to make sure that someone pays them.

Just because you are concerned about your credit score does not necessarily mean your soon-to-be ex-spouse will be similarly concerned about theirs. Whether it is secure with collateral or unsecured loans in the form assets belonging to you, or unsecured personal loans with no collateral, they will have no incentive to pay bills. However, your credit will ultimately suffer if none of you pays those bills, regardless of who is supposed to pay them. If you the account(s) is in your name, you will have to deal with the credit issues. 

If you and your spouse are parting ways on good terms, then hopefully they will hold up to their end of the deal and show some responsibility by paying whatever they are supposed to pay. However, if you and/or your spouse cannot stand the sight of each other, be prepared for the possibility that your soon-to-be ex-spouse may not cover any bills they are responsible for settling. This means you will have to make the payments yourself and it is better that you do. You can later report the non-payment to the judge and recover the money, while your credit score will remain unaffected.

When You are Not Able to Pay Your Bills

Your divorce may also render you insolvent if the proceedings turn out to be messy because you will have to spend a substantial amount of money on an attorney. You may also find it difficult to pay the bills by yourself if your soon-to-be ex-spouse was the only one earning money to support your family. A high credit usage or making late payments in such a scenario can damage your credit score to quite an extent.

Your FICO credit score relies on your payment history to quite an extent, and your credit will be affected if your on-time payments are less than 100%. You credit score will continue decreasing if you are not able to make payments due to your current financial situation, or you may also end up going bankrupt.

If you are using credit cards to supplement your income or because you do not have a job, make sure your balance-to-limit ratio is below 30%. Your credit score will decrease if you use too much of your credit and you will be left with limited financial options.

In such a situation you can either decrease your expenses or increase your income, or both, so end up with more cash and can pay your bills. Assess your discretionary spending and if you discover expenses that are not necessary, either cut them or limit them. Unnecessary expenses may include cable and subscription services, personal care, and restaurant spending.

When Your Ex-spouse Has Access to Your Credit Accounts

If there has been ill feeling between you and your spouse, your divorce may not necessarily be civil and your soon-to-be ex-spouse could end up being vengeful, especially if she is angry at you. This can be bad for you if your soon-to-be ex-spouse has access to your credit accounts, because they may purposely put you under debt that you will be forced to deal with.

If your soon-to-be ex-spouse is an authorized user, then they will not even be liable to pay and this will encourage them to spend away. Your credit score will be affected if you do not manage to pay off such debt. 

So, if you are certain that you are going to divorce your spouse, make sure you remove them from all your individual credit accounts and get them to do the same. While the end of a marriage is indeed a difficult period, you should still act out and take measures to secure yourself.

Thus, the divorce process can have an indirect negative impact on your credit score, but you can make an effort to avoid such a possibility. While keeping the above in mind will definitely come in handy, the best way to prevent post-divorce financial issues is to maintain a civil relationship with your ex-spouse and part ways on good terms.

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