How to Protect Your Credit During Divorce
According to Nolo.com, the national average cost of a divorce is about $15,000 per person, and the average duration takes about 11 months. That's a lot of time, money, energy, and sometimes worry. The unknown of what's to come and how you will get through this can be scary.
Keep in mind that filing for divorce will not affect your credit score. Though, there are ways it could indirectly hit your creditworthiness.
Here are ten ways to protect your credit — and your financial health — during divorce:
Plan to live on less money
You have to maintain the same household with fewer resources. So, the sudden loss in income can make it easy for debt to pile up. That's why it's important to create a budget. Consider major monthly expenses like housing or car payments. Can you temporarily move in with a roommate? Maybe trade in your car for something more affordable? If not, think smaller scale like canceling cable, carpooling to work, or even spending less on groceries.
There's also (potentially) the option of getting a part-time job. Think about driving for Lyft or Uber, or maybe working in the service industry so you can meet new people while you bring in a little more income.
Refinance your home after the divorce
If both names are on the mortgage, you'll likely need to refinance. When you refinance your mortgage, a credit check is required. Though, it's not going to damage your credit score. If anything, it's just another expense you may encounter (when you consider fees and closing costs). Unless, of course, it's your ex who is refinancing the mortgage to keep the home. Should your ex postpone a mortgage refinance and even go as far as not keep up with payments, you're on the hook! Missing mortgage payments can be detrimental to your credit score, so be sure to stay on top of who is taking the mortgage over.
Keep in mind a refinance is only necessary if one of you keeps the home. Sometimes, as a result of lower monthly income, it's not an option. You should agree to sell and split the proceeds in a case like that. Then you can move forward with purchasing your own home, which is another reason why it's very important to protect your credit during a divorce. You'll receive the most competitive mortgage rates if you have a healthy credit score.
Understand how debt is divided
Each state has its laws for dividing debt and assets. Some states separate them based on who brought what into the marriage. Other states consider equal ownership of everything, including debt. However, if a prenuptial agreement exists, it will influence any decision. Be sure you know how debt will be divided in advance. This way, you can prepare for the next steps.
Avoid debt delinquencies
Divorce is expensive, and it can be emotionally draining, making it easy to forget about monthly household bill payments. Don't let that happen! Late payment fees can create more debt, and they can also affect your credit score. Working together ensures everyone's credit remains healthy. If that's not an option and you're having trouble paying your bills, be sure to contact your credit providers. They may be able to work out a payment plan, so you're able to protect your credit during and after divorce.
Get your own checking account
The last thing you want is for your former spouse to drain what little savings you have. Whatever amount you have available in a bank account, you need to play it safe and open a checking account in your name. You can then set up direct deposit with this account and adjust automatic payments as necessary.
Remove one another as authorized users
Avoid taking on unnecessary debt by removing your ex as an authorized credit card user. Take yourself off their primary credit card accounts, too. Because as long as you're listed on each other's credit cards, you'll be factored into one another's credit score. So, if they're not making payments, your credit score can be harmed.
Monitor credit card charges
Let's not forget, that many banks and credit card companies offer instant notifications that let you know when your credit card is used to make a purchase. Opting in to these text messages or emails is an easy way to protect your credit and finances during a divorce.
Understand your credit limits
Most credit card agreements state that limits can be decreased at the creditor's discretion. So if your ex made more money than you, and the accounts are separated, your credit card company can lower your spending limits. This can affect your credit score and make it easy to reach maximum spending limits. Be sure to look at your credit card agreement and plan accordingly. Consider transferring your debt to a new card with better terms. It's a cost-effective way to protect your credit during a divorce.
Update your address
Moving out of the house can be traumatic for both sides. However, once you're settled in at your new residence, you need to alert the post office. Doing so ensures you'll receive all future credit card statements, bills, and other financial documents.
Improve your financial security
Are you sure you're the only one who knows your bank account password or debit card PIN? It's better to be safe than sorry and update this information as soon as possible. You want this divorce to be a fresh start, not a mess of your finances.
Above all else, monitor your credit during a divorce. Once a year, you can get a free copy of your credit report from the three major bureaus (Experian®, Equifax®, TransUnion®) at annualcreditreport.com. It's important to review all three reports since some creditors and lenders don't report to every bureau. By doing this, you can fully understand which debt has your name on it, and you can do everything you can to protect your credit during a divorce.