How to Prevent Divorce from Damaging Your Credit
Although celebrity divorces are the focus of the media — Tom Cruise and Katie Holmes, Dennis and Michelle Rodman, Heidi Klum and Seal — for many people the concern is not how many thousands they pay each month in spousal and child support, but how their many thousands of dollars in debt are allocated.
Even if you have the best-drafted divorce settlement agreement in the world, your creditors are not be the least bit interested in it. Creditors are not legally bound by divorce decrees. It is your responsibility to protect yourself if your spouse does not comply with a court order to pay creditors.
These are some things you can do to prevent divorce from damaging your credit:
- Create a list of all credit accounts. Pull a copy of your credit report and make a list of all your joint, individual and authorized-user accounts. Note that some lines of credit — particularly ones with smaller businesses — may not appear on your credit report, so take pains to come up with a complete list.
- Untangle your joint accounts. Starting with your individual credit cards, remove your spouse as an authorized user and get your name off all of your spouse’s individual accounts as well. Then take a look at your joint cards. If you can’t agree on who gets which card switched into an individual name, putting a freeze on joint cards or canceling them altogether can prevent your spouse from running up charges that you may be held responsible for later on. Closing credit card accounts and opening new ones can lower your credit score, so do this only when necessary.
- Call credit card companies to inform them of your divorce. Make sure that new addresses are on record, and opt out of receiving pre-screened credit offers to prevent your ex from applying for new credit in your name.
- Refinance your mortgage and car loan. If the salary of the spouse keeping the house or car isn’t large enough to qualify for an individual loan, consider selling.
- Keep tabs on all remaining joint accounts. Get online account access or a hard copy of all joint account statements since just one late payment can hurt your credit. Consider making minimum payments on an account that is your spouse’s responsibility. Check your credit reports regularly.
- Create a budget. Be conscious of your changed financial circumstances and budget accordingly.
For over 20 years, I have worked diligently to help people start new lives with minimal financial entanglements. Contact my office today for a consultation.