Money problems are often cited as one of the main factors that lead to divorce. Unfortunately, trouble with money doesn't always end when spouses part ways. Divorce is not only one of the leading causes of bankruptcy in the United States, but it's also the beginning of credit problems for many people.
Luckily, there are ways you can prevent or minimize the effects of divorce on your credit score.
How Divorce Can Harm Your Credit
It's not the divorce itself that causes your credit rating to take a hit. And some people might not be affected at all. Rather, it's the financial effects of divorce that can lead to credit trouble. Some of the most common ways divorce damages credit include:
- Additional expenses. Many divorces result in child support and alimony payments, which can eat away at a budget and make it difficult to make ends meet.
- Attorney costs. Couples who opt for an attorney to handle their divorce or who have a long, drawn-out divorce are often left with extensive legal bills.
- Joint accounts. Joint accounts hold both names on the account responsible, even if a court declares one party responsible for making the payments after a divorce. Your divorce decree may state that your ex is responsible for the payments on your joint credit card, but if he defaults, your credit suffers as well.
- Reduced income. Divorce often leaves people managing the expenses of a household on just one income. When this income isn't enough, it's easy to miss payments or turn to credit card usage to make ends meet.
- Vindictive behavior. Unfortunately, some spouses attempt to “get back” at a soon-to-be ex-spouse by purposely emptying savings and checking accounts, running up credit cards, or missing payments.
Protecting Your Credit After a Divorce
Safeguarding your credit from divorce requires a little work. The following steps can help lessen the impact on your credit score:
- Refinance joint loans into one name. If both you and your spouse are named on home and auto loans, decide who gets what and refinance them in the new owner’s name. This will relinquish you of any joint responsibility. If you can’t afford to do this, sell the assets and split the proceeds. Don’t assume a lender will relieve you of responsibility even if you have a court order stating your spouse is responsible for the debt and payments.
- Close joint credit cards. If you have joint credit cards, ideally you should pay them off and close them. If you are carrying a balance, discuss your options with the creditor. In some cases, you can separate the debt and put your portion in your name only.
- Put a shield on your social security number. In order to prevent your spouse from opening accounts in your name, put a fraud shield or credit freeze on your social security number, and make sure you provide a phone number or address that only you can access. This will prevent any accounts from being opened in your name without your consent.
- Remove authorized users. If your spouse is an authorized user on a card that is in your name, remove him or her. This is easily done by contacting the credit card company.
- Establish your own accounts in your name. If you don’t already have a checking account or credit card in your name, open them. This will protect your finances and help you establish a credit history if you don’t have one of your own.
Going through a divorce is difficult enough, and damage to your credit score can make a difficult situation even harder to cope with. These measures can help protect your credit from divorce.