The act of filing for a divorce doesn’t directly affect your credit score, but there are other ways it can have unintended impacts on your creditworthiness.
Does divorce show up on my credit report?
No. But actions related to your divorce can have a material effect on your credit report.
Once your divorce becomes final, you will receive a copy of a final divorce decree. This is a legal document that will spell out all of the details of your divorce. Among other things, it will include how debts should be handled that you and your spouse acquired during your marriage.
Sometimes spouses are able to negotiate who will handle each debt. In other cases, the court will determine who is responsible for repaying the debt.
While this has been determined legally, creditors and debt collectors don’t really care what the court has determined about who is responsible for a particular debt. If both spouses attached their name to the debt, then both spouses are responsible for repayment.
The creditor was not a third party to any new decisions that were made about your existing debt with them, so they are not going to honor any changes or agreements you made with your spouse. They are also not bound by any decisions a judge has made regarding who is responsible for the debt. In other words, a divorce decree does not supersede a debt agreement made by both spouses.
That means even if a spouse is held responsible according to a divorce decree, you will not be protected from damage to your credit report if your ex-spouse does not make payments in a timely manner on the debt they were assigned. You also will not be protected if a collector decides to sue you for payment.
The best way to protect yourself from this happening if the other party is responsible for the debt is to separate any joint accounts as soon as possible. Start by paying off and closing any joint credit card accounts if you can.
With larger debts such as mortgages and auto loans, try to refinance those debts into the name of the spouse who will be maintaining ownership of the asset. If refinancing isn’t feasible, then you can attempt to sell the asset and use those funds to pay off any jointly acquired loans.
The other important thing to note is that by law when an ex-spouse falls behind on child support or alimony payments, those late payments can wind up on their credit support.
Do I need to tell my creditors I am getting divorced?
No, not unless you are applying for new credit of any kind.
Also, if you and your spouse split your debts and make them separate, you can’t simply remove your name from debt like a credit card and have only the single spouse as the owner of the credit card. If you want to keep the credit card or another debt instrument, you will need to apply separately and open a new account on your own.
Will child support and alimony show up on my credit report?
When a person is ordered to pay alimony or child support it can be reflected in their credit report.
If you are in arrears or have ever been in arrears on court-ordered support, the credit bureaus are required to report delinquencies. This can have negative effects on a person’s credit score.
Creditors and lenders can deny credit based on this credit report information. In addition, sometimes creditors and lenders report the whereabouts of missing parents to child enforcement agencies.
It is not a two-way street. Unfortunately, making timely support payments won’t positively influence your credit report, but late payments will negatively influence it.
Delinquent child support payments will stay on your credit report for up to 7 years.
But you may be able to strike a deal with the administrators overseeing the spousal or child support payments. An agency may agree not to report negative information to the credit reporting agencies if you pay some or all of the overdue support.
However, only a few child support enforcement agencies will agree to eliminate all negative information. Most will at least report that you were delinquent in the past.
In other cases, many states require child support enforcement agencies to notify you before reporting overdue child support information to credit reporting agencies. This will give you a reasonable opportunity to dispute the information. In addition, many states require agencies to report only overdue amounts exceeding $1,000.
If your past-due child support debt is not paid, it can go to collections. This means a collection item on your credit report will be noted and this will have a serious negative impact on your credit score. Collections for unpaid child support can lower a high FICO score by as much as 100 points or more.
Sometimes, there is a court judgment for back child support due to a lawsuit brought by a state child support enforcement agency or the custodial parent. A judgment can lead to wage garnishment, a property lien, tax refund confiscation or other means of enforcement. Just like a collection, this can lead to a major drop in a FICO score by 100 points or more.
By law, Title IV, Part D, of the Social Security Act requires states to report periodically to consumer reporting agencies the name of any noncustodial parent who is delinquent in the payment of child support and the amount of overdue support owed by such parent.
Since all credit bureau reporting must follow the Fair Credit Reporting Act (FCRA) rules, a state child support enforcement agency is no different than a bank or other lender in its responsibility to comply.
The other thing to note is that lenders often consider delinquent child support when evaluating credit applications, regardless of an applicant’s credit score. Even when the credit score is high, it is not unusual to require late child support payments to be paid in full as a condition for credit approval.
And, if a person is in arrears on child support or alimony payment, and the full amount that is due can’t be paid immediately, making payment arrangements with the child support enforcement agency early on can prevent the long-lasting score damage a collection or court judgment will cause.
Can my ex-spouse ruin my credit?
Yes, but only if you don’t take aggressive and proactive steps to protect your finances.
The easiest way to do this is to eliminate all joint debts between you as quickly as possible. If you don’t shore up your defenses and become completely independent, it could come back to haunt you.
Keep in mind that even though legally your spouse may be assigned a debt as part of a divorce decree, creditors will still have the right to hold you liable for timely payments.
If you do not untangle joint debts, and your ex-spouse misses a payment or several payments, your credit score could take a hit even though it was technically not your fault. Any person listed on the account is responsible.
It’s also not out of the realm of possibility that one spouse will intentionally seek to hurt the other spouse’s credit as well. This often happens in contentious divorces out of spite or revenge.
Don’t assume that a spouse will follow through on paying accounts that are held in both of your names. Keep track of due dates and amounts and provide coverage for those amounts in a timely fashion to avoid wrecking your credit. You may be able to recoup those amounts by asking a judge for relief at some point in the future.
How do I protect my credit during a divorce?
We have already mentioned a few things you can do to protect your credit during a divorce such as separating your accounts and paying off and closing joint accounts. Here are some other things you can do as well:
Continue to pay your bills.
Your finances are going to be challenged during a divorce and you’ll encounter a fair amount of uncertainty. But to avoid long-term damage to your credit, you must find a way to keep paying your bills if there is any way possible.
Not doing so can put you at a real disadvantage when you face the more difficult challenge of trying to obtain credit on your own down the road.
Don’t ignore bills, even if you can’t pay them. If you’re just flat out stuck and can’t afford to pay your bills, contact your creditors and explain your situation. You must demonstrate a willingness to want to pay your bills, and in some situations, creditors will work with you without penalties.
Keep in mind, creditors also want to be paid at some point so they could very well surprise you with their level of understanding and cooperation.
Tighten up your security measures.
This means changing your passwords and contact information so that your spouse can no longer access your financial information. Consider getting a separate PO box if you haven’t moved out and think about restricting access to your social media accounts as well.
You do not want an angry spouse using your own information against you, or draining accounts they may not be entitled to, setting up a big battle.
Monitor your credit score.
You can get a free copy of your credit report through www.AnnualCreditReport.com, or you can purchase copies through any of the bureaus as well. Some banks, such as Wells Fargo, also offer free access to scores as a feature of their checking accounts.
Divorce is already filled with enough other surprises, so if you can minimize surprises when it comes to your credit, you should do so.
Monitoring on a regular basis can help you spot problems so that you can take action that will start to improve your situation as well. And if there are inaccuracies, you’ll definitely want to clean those up too.
Reach out for help.
A consumer credit counseling agency will be able to offer you guidance and present you with options that you might not otherwise know about. Be wary of agencies that ask for an upfront fee, but legitimate non-profits will help you work with creditors to resolve many of your financial issues.
If you’re having trouble paying all your bills. Be wary of those that offer a quick fix. But legitimate non-profits can offer innovative solutions and help you work with creditors to find solutions to your short and long-term financial issues.
How can I repair my credit after divorce?
After you have taken steps to protect your credit, your next step is to try and repair and rebuild your credit after a divorce.
Because you’re now on your own, and depending on how much damage has been done, you may need to take small steps at first to reestablish your credit profile.
Consider getting a secured card.
If you have had limited credit in the past because most of it was in your spouse’s name, consider getting a secured card. This will require you putting a small amount of money in a savings account with the issuer that will serve as collateral. Sometimes, this can be as little as a couple of hundred dollars.
Find a co-signor.
Depending on your relationship with friends and relatives, you may be able to ask them to co-sign for a credit card or other similar debt instruments. This will buy you time to get back on your financial feet.
Dispute your credit blemishes.
By law, you are allowed to send a written explanation of up to 100 words to the credit bureaus to defend items on your credit history.
You can use this as a way to explain circ*mstances surrounding your divorce, or how an irresponsible spouse may have had a hand in negatives on your report.
Don’t expect your credit score to change as a result, but with your explanation as part of the public record, it may help tilt things in your favor when applying for credit in the future, or as it relates to renting an apartment or getting a new job.
Think about freezing your credit.
If you’re in an amicable divorce, this may not be necessary. But if things get ugly, this could be an option for you.
Keep in mind that an ex-spouse likely has access to your Social Security number and other vital information, so he or she could take out credit in your name, though not legally.
Even though you wouldn’t be ultimately responsible for fraudulent charges, an ex who uses your information to take out new credit could make things really messy.
Placing a freeze on your credit should stop anyone from opening a new account in your name. You can do this yourself by contacting each of the credit bureaus or you can pay a company like LifeLock to do it for you.
Live within a budget.
It sounds basic, but you will have to learn a new financial reality going forward. Cut out what you can’t afford. Stick with essentials and build a new nest egg to give you a measure of protection.
Keep in mind that you’re going to be on an emotional rollercoaster, and if you’ve had problems managing money in the past, you could be vulnerable to spending sprees that will bring you short-term pleasure at the expense of long-term security.
Part of creating a new budget is managing any alimony and child support that you have to pay or that you will receive. These items can have a profound impact on you going forward.
You may need to adjust your job situation and find a position that pays better, or find a way to downsize your living arrangements until you can get back to a more stable place.
Educate yourself.
There are a couple of ways to do this.
There are lots of online resources available to you that will provide you with a wealth of information on virtually every divorce and credit-related topic. If you don’t have the answers you need to feel comfortable about how to protect and repair your credit following a divorce, it’s time to get smart.
For more complicated financial matters as they relate to your credit and to all parts of your finances, you may want to consider hiring advisors to help you get through your issues. In addition to a family law attorney who will be a generalist on these types of matters, consider retaining a more specialized professional.
You could benefit greatly from retaining a certified divorce financial analyst, a divorce mortgage specialist, a certified financial planner or other similar financial experts who can protect you from making large financial mistakes.
Take legal action to protect your interests. If your spouse is not cooperative, or if you find they have not kept in line with the provisions of a divorce decree, you can take legal action and force them to comply.
If a spouse is not paying bills, alimony or child support and that is causing you financial hardship, you can seek a civil action against them to keep your credit from taking a major hit.
A spouse’s wages can be garnished, among other actions, until the obligations have been met.
What about filing for bankruptcy?
Make no mistake, bankruptcy is not any kind of a credit repair strategy. In fact, it’s just the opposite.
But sometimes, bankruptcy is unavoidable if you’ve run out of time and run out of options.
Bankruptcy will stay on your credit report for up to 10 years and will typically lower a credit score by about 200 points.
If you do need to file for bankruptcy, consider whether to file for divorce either before or after the fact. There are valid arguments on both sides of the issue.
Also understand that filing for Chapter 7 bankruptcy, which discharges most all debts, does not excuse you from certain obligations. These include:
• Alimony
• Child support
• Fines owed to government agencies
• Student loans
• Court fines and/or penalties
• Attorney fees for child custody or support cases
Also understand that if you or your spouse decide to file for bankruptcy during your divorce proceedings, your divorce attorney cannot represent both of you.
This is due to the fact that attorneys are barred from representing clients that have a conflict of interest with each other. Filing for bankruptcy creates a conflict for the attorney because clients are now opponents in another legal matter.
Questions? Feel free to email us at info@preicapital.com
