Getting Answers to Your Questions About Divorce & Credit

  By Gerri Detweiler, CREDIT Specialist Author

     Getting Answers to Your Questions about Divorce and Credit  

What happens to your joint debts when you divorce?  

Divorce is difficult enough to go through, without the additional worry of doing damage to your credit history – a problem that can affect you for years to come. However, this is just what happens to a lot of people in the wake of a divorce who have not prepared themselves with a view to protecting their credit history before, during and after divorce.

  A lot of people are under the impression that their joint debts may simply be assigned to their ex-spouse as part of the divorce proceedings and they will no longer have those debts over their heads. In fact, this is not the case. I've spoken to many people who have had their credit ruined due to their former spouse falling behind on payments for joint accounts – even though their ex was required to pay those debts as part of the divorce decree. 

A divorce decree is the agreement made between you and your ex-spouse during the divorce proceedings; however, it does nothing as far as eliminating the responsibility for the debt owed on a joint account. You have to think about these joint accounts, perhaps for years, until those debts are closed and repaid in full.

  The best thing for both you and your soon to be former spouse is to refinance or pay off any joint accounts. This should b done in the name of the partner who bears responsibility for the balance. This may not always be a possibility – it might be the case that neither partner can afford to pay this balance or secure refinancing for the debt. You should agree with your spouse that the account needs to be closed so that no further charges can be accrued. You should then send a certified letter to the creditor requesting that the account be closed – keep a copy of this letter for your own records. 

If this is the option you have chosen, be certain that you keep an eye on payments made on joint accounts on a monthly basis to ensure that all payments are being made on time. You can often look at these accounts online to monitor payments. If your ex is falling behind on an account, you may have to bite the bullet and make the payments yourself to preserve your credit rating. You can pursue your ex-spouse for payment later. Be sure to ask your attorney for advice about this.

  If your ex-spouse has filed for bankruptcy and included your joint debts as a part of the bankruptcy, creditors may come after you for payment of these debts. This is another good reason to make sure that joint accounts are either paid off or refinanced by the responsible partner before the divorce is finalized. 

Any late payments will stay on your credit reports for seven years. This can serve as a painful, not to mention inconvenient reminder of your divorce. You should act now to keep these financial matters from hurting you even after the divorce is over.

How can I build or rebuild good credit after divorce?  

While your divorce may have happened some time ago, you may be reminded of it each and every time that you apply for a loan, shop for insurance, or in any number of other situations. Damaged credit is one of the common after-effects of a divorce, particularly when the divorcing spouses have not taken the necessary measures to preserve their credit ratings. There are a few ways in which a divorce can affect your credit rating:

  1.  Joint accounts should be divided and paid off promptly. If the partner who has taken responsibility for an account does not pay, it affects the credit ratings of both parties negatively.

     2. It is generally recommended that joint credit cards be closed before a divorce so that neither party can be held responsible for any future charges on the card. This unfortunately can result in you having a very spare credit history after a divorce; no credit history can be almost as bad as a bad credit history.

  Not only is it important to have a good credit history of your own, it can save you a lot of money in the long run. A Consumer Federation of America study found that if consumers were able to increase their credit scores by 30 points, more than $30 million would be saved by American consumers as a whole on finance charges! 

How do you rebuild credit after divorce?  

The first thing you need to do is to look at your credit report; you can receive a free copy of your credit report from each of the three large credit reporting agencies once per year. These bureaus are Trans Union, Experian and Equifax. The only place to get your federally mandated free reports is at www.AnnualCreditReport.com.

 The next step is to dispute any erroneous items on your credit report. However, keep in mind that something which you think may be on the report in error, may in fact not be. If you have paid off an account, this does not mean that it is immediately removed from your credit report. Late payments can be reported for seven years, even if you have closed the account, or if your ex-spouse is paying on the account. 

After correcting mistakes, the next thing you must do is build positive credit references to increase your credit scores. You can do this when your own credit is shaky by obtaining a secured credit card, piggybacking on someone else's account (someone with strong credit, of course!) or asking for a loan from people through a service which reports these positive reference to the big three credit reporting bureaus. This is an important step which you cannot overlook in your efforts to rebuild good credit following a divorce.

 Gerri Detweiler serves as Credit Advisor for Credit.com and is the author or co-author of four books. Her most recent book is, Stop Debt Collectors: How to Protect Your Rights and Resolve Your Debts. For more information: visit: www.Credit.com/StopDebtCollectors.