Credit Score in Your Life

How Can Your Divorce Affect Your Credit?

Going to divorce? Worrying about your credit score may be the last thing on your mind during this life-changing event. But if you don't pay off and close your joint accounts, you can get into a serious trouble! Your joint debt will remain your shared responsibility even after divorce. Once your soon-to-be-ex-spouse make several late payments, you FICO score will significantly drop. Since the modern world revolves around credit, a low FICO score will have a devastating effect on your life. Luckily, you can save your financial reputation by taking timely measures.

Understanding Your Accounts

The key to save your credit rating is preparation. Start thinking about your financial responsibility when it becomes obvious that your marriage is working out.

In most families there is only one partner who is responsible for paying bills. It leaves the other spouse in the dark about a lot of things. If you are not aware of your financial situation, it can contribute to problems upon separation. Repairing your credit can take months! So find out what kinds of accounts you and your spouse have. They can be individual or joint.

Individual Accounts

Individual accounts mean that you alone are responsible for making payments on your credit card bills. The account will be stated only on your credit report (or on the credit report of an "authorized" user).

Individual accounts make financial separation much easier. After divorce you and your ex-spouse will simply stay with your own debts, so there is no need to worry about his or her payments.

Joint Accounts

Joint accounts mean that you and your partner are equally responsible for the outstanding credit card debt. So if your spouse doesn't make payments, it is you who must repay the balance!

All payments will be reported in both names. If you aren't careful, your spouse's handling of your joint account can hurt your FICO score.

Most people, even if they started out with separate accounts, eventually combine their money. If you have joint credit cards, the separation can be difficult. Divorce does not relieve either party of joint financial obligations. It is the end of your marriage, but not the end of your shared financial responsibility!

How to Protect Yourself

Try to close your joint accounts as soon as you understand that your marriage is ending. That will prevent accumulating more debt. Contact your lenders and explain the situation. By law, credit companies can't close a joint account because your marital status will change. However, they can do it on your or your spouse's request.

A bank is not obliged to change joint accounts to individual accounts. So if you have an outstanding debt, you and your spouse may be required to apply for a separate credit card for each of you and then transfer agreed-upon balances into these accounts. If your partner can't get approved for a new plastic, he or she may ask the relatives to co-sign. Once you have separated or canceled all of your joint accounts, you are no longer responsible for each other's debts.

During divorce negotiations, pay all your joint bills on time even if you are not responsible for the debt. Otherwise, the missed or late credit payments will become a part of your credit report, and your lenders could not agree to release you from joint liability.

Comments

Ann, 09:42 AM, October 10, 2008

I am going to divorce.....

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