Everyone knows that divorce can be expensive. But when most people think of the costs involved in divorce, they are imagining legal fees or marital property that has to be divided with the other spouse. And while those may be significant, it’s important not to overlook the importance of protecting your credit in a divorce.
Getting through a divorce is difficult, but the light at the end of the tunnel is to build a new life and move forward into the future that you want. Unwise financial decisions before, during, and after the divorce process can throw roadblocks up on the path to that new life, damaging your credit and perhaps even forcing you into bankruptcy.
It doesn’t have to be that way—but to avoid taking a hit to your credit in a divorce, you must be proactive. This is true for everyone ending a marriage, but especially for people who counted on their spouse to handle “all the money stuff.” In your new life, you will not only have responsibility for your finances, you’ll have control over them. Use it wisely! Here are three tips for protecting your credit in a divorce.
You may think you have good credit because your spouse does, especially if you have been married a long time and have significant marital assets. However, credit bureaus maintain separate credit ratings for individuals, so if you don’t have your own credit, it’s time to start building it.
Begin by checking your credit reports looking at reports from all three of the major credit bureaus (Equifax, TransUnion, and Experian). This will help you understand your position and allow you to take steps to correct any errors that could be lowering your credit score. They are more common than you might think.
The next step is to apply for a credit card in your name alone. You will probably be able to get at least a low-limit card if you have some credit history. If not, you may need to start with a secured credit card (which requires a refundable deposit) or a store credit card. Use your card responsibly, making purchases every month and paying off the card every month. Ideally, you should aim to use no more than 30% of your credit limit each month.
As time passes, building a mix of credit types, such as a credit card and a car loan, and making regular on-time payments, will continue to build your credit score.
Who is responsible for credit card debt in a divorce? Your divorce settlement may say that one spouse or the other is responsible for paying off a certain credit card. But what happens if that spouse doesn’t make the payments as they are supposed to? If you don’t understand the answer, you may find your credit taking a hit for your ex-spouse’s failure to pay.
A divorce settlement is an agreement between you and your spouse; they may agree to pay off the balance on the Mastercard, while you pay off the balance on the Visa. But the credit card companies don’t care about an agreement you made with each other; they care about the contract you have with them. If you held the credit cards jointly, that means the company can go after either of you for payment. Your only recourse is to pull your ex back into court to get them to pay you back for any payments you made on a credit card debt they were supposed to pay.
In the meantime, if you don’t pay, your credit could suffer. That’s why it’s best, if at all possible, to pay off and close down joint accounts before your divorce. If you can’t do that, try to get your spouse to agree to freezing those accounts. You’ll still have to make payments on them, but neither of you will be able to make any new charges on a frozen credit card account. If you have a credit card in your own name, and your spouse is an authorized user on the account, contact the credit card company to have them removed.
Freezing your credit is different from freezing a credit card account. By freezing your credit, you can prevent accounts from being opened in your name without your authorization. This is especially important if you suspect that your spouse might use your personal information to take out a loan, a line of credit, or otherwise incur debt that you could be on the hook for.
To protect your credit in a divorce by freezing it, you will need to contact each of the three credit bureaus individually. You should expect them to request personal information such as your name, address, birthdate, and Social Security number. They may take other steps to verify your identity, which is for your protection.
Each bureau will give you a PIN or password to unfreeze your credit when you need to. It should go without saying that you should keep this information in a safe place; if you lose it, it will be very difficult to unfreeze your credit. If you have your PIN or password, you can temporarily lift the freeze online or by phone when you want to apply for a credit card, mortgage, or loan.
Protecting your credit in a divorce is something you shouldn’t overlook. Get more tips from an experienced family law attorney. At Duke Law Firm, P.C., we provide our clients with trustworthy representation for a wide variety of divorce and family law matters and are committed to walking with them every step of the way.
Offering customized legal services and compassionate counsel, we welcome you to contact us online or call Duke Law Firm at 585-229-6875 (Lakeville) or 585-449-4987 (Rochester) today to schedule a consultation to learn how we can help.
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