Divorce can affect many aspects of your life, but one thing you may not have considered is how it affects your credit score.
Here’s what you need to know about credit and divorce.
Will my divorce hurt my credit?
Divorce doesn’t directly hurt your credit, because your creditworthiness isn’t dictated by your marital status. In fact, your credit reports don’t have any mention of whether you are married or divorced. However, there are several indirect effects of divorce that can bring your score down.
1. Your ex-spouse doesn’t pay your joint bills
Problem: If you have any joint credit accounts with your ex-spouse — mortgage, credit cards, etc. — someone has to pay them. The judge may have ruled that your ex-spouse has to pay X, Y and Z after the divorce, but it’s important for you to make sure this is happening.
Let’s say your ex-spouse isn’t as concerned with his or her credit as you are. What would be the incentive to pay bills, especially unsecured bills or secured bills with assets that belong to you? Answer: There isn’t any.
The kicker is, if these bills don’t get paid and they’re in your name, your credit will suffer. It doesn’t matter who is supposed to pay them, whoever’s name is on the account is going to deal with the credit issues.
Solution: Ideally, you and your ex-spouse are on decent enough terms that you’ll both hold up your end of the deal financially. But if that’s not the case, you need to make payments on any bills your ex-spouse isn’t covering, regardless of who’s responsible for them according to your divorce agreement.
You can try to recover this money later by reporting the nonpayment to the courts — just don’t let it hurt your credit now.
2. You’re unable to pay your bills
Problem: If your divorce was messy, you may have spent a significant amount of money on an attorney, rendering you insolvent. Or, if your ex-spouse was the primary breadwinner, you may have trouble covering the bills on your own. These scenarios can hurt your credit score if they cause late payments or heavy reliance on credit cards.
If your current financial situation makes it impossible for you to pay your bills on time, your credit score may decrease.
Payment history is the most important factor in credit scores, and anything less than 100% on-time payments may hurt your credit. If your current financial situation makes it impossible for you to pay your bills on time, your credit score may decrease.
If you’re supplementing your income (or lack thereof) with credit cards, you may be using too much of your credit. High credit utilization — basically any balance-to-limit ratio over 30% — can decrease your credit score and limit your options financially.
Solution: There are two ways to free more cash to pay bills — increase your income or decrease your expenses. Ideally, you’ll be able to do both.
To earn more and spend less, think about working overtime, taking a second job or freelancing during your free time. Cut or limit unnecessary expenses by evaluating your discretionary spending. Some common examples include cutting cable and subscription services, and limiting restaurant and personal care spending.
3. Your ex-spouse is vindictive and has access to your credit accounts
Problem: While some spouses are able to split with a minimum of drama, many divorces aren’t so amicable. And if your ex-spouse is angry and has access to your credit accounts, he or she may rack up debt in your name.
This is most common with authorized users, as they are not liable for payment. So if your spouse is an authorized user on one of your credit cards, he or she can essentially spend away without consequences. If you’re unable to pay off this debt, it can hurt your credit score.
Solution: Remove one another from all individual credit accounts as soon as possible. Even the most reasonable people may act out when grieving the end of a marriage, so don’t assume your ex-spouse will handle your divorce gracefully.
If you’re going through a divorce, work to minimize its negative impact on your credit. Make sure all joint bills are being paid one way or another, stretch your budget to ensure your personal bills are being paid in a timely manner, and remove your spouse from your accounts wherever possible. Most importantly, stay civil — the better your post-divorce relationship, the less likely your ex-spouse is to try to trash your credit.