What Affect Does Divorce Have On My Credit Rating?

Since over half of all marriages end in divorce, one should be aware of the effect getting divorced has on one's credit and credit report.  Divorced couples may find their credit suffering for the simple reason that too many divorce attorneys fail to look out for their clients' interests in that they don't help them separate financially from their former spouses.  Instead, too many divorce decrees simply state which party will be responsible for paying which bills.  Doing this leaves both parties open to all sorts of future financial disasters.

For example, consider what happens if your ex-spouse doesn't hold up to his / her end of the deal and stops paying the credit card bill he / she agreed to pay per the divorce decree.   If the credit card issuer still lists both of you as joint accountholders, then any delinquencies or non-payments will be reported to both of your credit files, and the company might seek collection against either party.   People who divorced two or three years ago can find their credit ratings ruined and unable to get home or auto financing for years in the future because of the financially irresponsibility of a former spouse.

How can this financial nightmare be avoided?  Simply by asking the creditor to convert jointly-held accounts to individual accounts. The best time to do this would be while the divorce is taking place.  In fact, it would be an excellent idea to address this issue in the official divorce papers.  The Acme credit card you agree to pay will be converted to an individual account in your name only and the XYZ credit card your ex agrees to pay will be converted to an individual account in your ex's name only.

By law, a creditor cannot close a joint account because of a change in marital status, but can do so at the request of either spouse. A creditor, however, does not have to change joint accounts to individual accounts. The creditor can require you to reapply for credit on an individual basis and then, based on your new application, extend or deny you credit. In the case of a mortgage or home equity loan, a lender is likely to require refinancing to remove a spouse from the obligation.

If you still have joint accounts with an ex-spouse, you should make sure that the bills your ex-spouse agreed to pay are, in fact, being paid.  You should pay any bills with your name on them that your former spouse refuses to pay them, then pursue collection efforts against your former spouse to recover the money you are out.  You can use the divorce decree as proof that the other party agreed to be responsible for the debt.    Of course, you should take whatever steps necessary to get your name removed from the creditors' records as quickly as possible.

Frequently asked questions about credit and divorce:

I am in the process of getting a divorce. How can I prevent my spouse from running up big balances on our credit cards?

Call the credit card company and cancel the credit card.  Either party can cancel a joint credit card account.  You can then apply for credit in your name only.

Should I include my monthly child-support payments in my income disclosure when applying for a credit card?

Yes, you should include this as it will help you get credit and at a lower interest rate.  Low income people usually obtain credit cards at much higher interest rates, so you always want to include all of your income when applying for a credit card.

Now that I'm divorced, how do I get the credit bureaus to maintain a separate credit report on me?

Write them a letter and let them know you're divorced.  Enclose a copy of your divorce decree. Of course, the credit bureau will include old information about the joint accounts you held with your spouse.

My ex-husband had a very bad credit rating.  Now that I am divorced, can I be denied credit because of his bad credit rating?

Any accounts that were jointly held by you and your ex-husband will appear on your credit report.  However, the Equal Credit Opportunity Act requires a creditor to consider any information you can offer them that shows your own credit history is good.
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