How to Protect Your Credit During Divorce

July 2, 2021

Going through a divorce will take a toll on your emotions, but did you know you could also suffer long-term financial damage if you rush headlong into proceedings without taking steps to protect your credit?

If you don’t pay attention to this important aspect of your financial health—or if your spouse intentionally sabotages your credit—you could spend the next ten years struggling to qualify for financing and pay increased interest rates for any new credit you are able to obtain. Your insurance premiums could even go up!

Below are some steps you should take early in the process to help make sure you come out financially whole on the other side of your divorce.

Key Steps You Need to Take NOW:

 

1.       Review Your Credit Report for Accuracy

Once per year, the three big credit reporting agencies—TransUnion, Equifax, and Experian—will allow you to review your credit files for free. Take advantage of this free service to carefully review your report, dispute any errors, and check for unrecognized accounts that could uncover irresponsible credit management by your spouse or indicate an incidence of identity theft.

If you see something inaccurate, don’t ignore it—fix it! But don’t bother trying to dispute accurate information, even if it’s negative or unflattering. Your credit report should reflect a complete and accurate picture of your actual borrowing habits.

2.      Disentangle Joint Credit

The goal here is to leave the marriage without any joint debt. Take steps to cancel any unused joint credit cards, and attempt to pay off existing balances, focusing on the highest interest rate accounts first. And, if you can, split any existing joint balances onto separate accounts held in each individual spouse’s name. If you can’t do that, then keep a close eye on joint balances to make sure your spouse isn’t maxing out credit cards or taking on new debt with the intent to sabotage your credit.

If your spouse is an authorized user on any of your individual accounts, make sure to remove them immediately—before they go on a spending spree!

3.      Identify and Pay Down (or Pay Off) Your Most Urgent Credit Accounts

Pay off or pay down your high balance and/or high-interest credit cards, if you can. This will help you later when you apply for a mortgage loan or attempt to refinance your existing home into your name.

4.      Establish Credit in Your Own Name

Are all of your credit accounts jointly held? Once you’re divorced, it could be extremely difficult to establish individual credit unless you already have a spotless credit record of your own. Now is the time to open a new individual account and begin the process of establishing your individual credit record.

Important note: this isn’t your cue to run off and spend hundreds at the mall or buy a $40k car. Working toward a high credit score means borrowing as little as possible and paying it back promptly. The key here is not to get into debt, it’s to build your credit file. So, borrow $35, then pay it in full when the bill comes. Do that every month for a while, and creditors will begin to see you as a good credit risk.

5.      Freeze or Lock Your Credit if You Need To

If your spouse is likely to become vindictive and attempt to open new credit accounts in your name, a credit freeze or credit lock will stop them in their tracks.

Once your divorce is final and all of your credit accounts are disentangled from your spouse’s, check your credit report again. Make sure any disputes have been corrected, and no unexpected accounts have popped up since you last checked your file.

Helpful Hint

Credit is weighted toward the recency of the information, so don’t worry too much if you had a few missed payments several years back. Creditors want to know how you’re managing your finances today. Don’t miss any payments while you’re going through your divorce, and act as responsibly as possible with the credit you do have, and you’ll position yourself for a much easier post-divorce financial life.

If you have questions, or if you’d like a referral to a qualified credit counselor, let me know.

 

650-550-8646

Shannon Rose
CDRE, SRES, CDPE, CLHMS, GPS
DRE# 01422955
Los Gatos, CA
1-650-550-8646
DivorceRealtor@RoseGroupRE.com

BAY AREA DIVORCE REALTOR®

SHANNON ROSE/ROSE GROUP
DRE #01422955

KW BAY AREA ESTATE
DRE #01526679

16780 LARK AVE.
LOS GATOS, CA 95032

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