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Couple finding out how a divorce affects your credit score

Five Ways Divorce Affects Your Credit Score

You've probably heard that divorce can harm your creditworthiness.

Even though the separation process may not influence your creditworthiness, there are still several ways your credit rating may suffer. For example, a person could be cash-strapped during such a period and have a reduced credit rating.

As a result, this article guides you through learning about the difficulties that might develop during a divorce that can harm your credit history and the steps you can take to avoid them.

How Divorce Could Affect Your Credit

Below are some examples of ways that divorce and the emotional strain that accompanies it could impact your financial stability.

Missing Payments

Either partner might stay in the family household, shouldering more of the expenditures. There could be monetary reliance on the former spouse if child support, spousal support, or alimony is in force.

The prospect of missing payments suddenly becomes even more daunting. Missed or late payments are a principal cause of a credit rating decline.

Closing Joint Credit Cards

If you cancel any joint bank accounts with your partner and don't have any accounts of your own, you might wind up without any credit rating. You must have at least one account that is at least six months old, one that the lender has changed within the past six months, and no deaths on file to get a credit score.

If you have personal accounts, you may meet the credit score requirements; however, the closure may impact your score. In particular, the closings could lower your overall credit score while raising your debt-to-income ratio (if you ever took out loans).

The joint bank accounts you closed will eventually fall off your credit report, which could hurt your score because the average age of your accounts will be getting younger.

Obligations Change

When it comes to determining who is responsible for a loan, lenders are often slow to respond. No matter whose name is on the title or bill, mortgages, car payments, and other costs are usually considered joint obligations.

Even when a court directs one partner to make the payments on joint obligations if the liable half ceases to pay them, the lender sends the matter to credit rating agencies as non-payment or late. Understanding why joint obligations might cause significant issues for a person's credit rating after a divorce is simple.

Combined Liabilities

Even when a court directs either partner to make payments on existing loans, and that person cannot follow through, the debt is still viewed as a joint liability by lenders, and both credit ratings will suffer.

Lack of Independent Credit History

The Federal Trade Commission warns that women are especially exposed to losing their credit entirely after separation. If the majority or all of your credit history is built on joint commitments, you may not have a personal credit file.

Also, if you are removed as an authorized user on your partner's credit card(s), your credit utilization score may suffer.

What Can You Do To Protect Your Credit?

It would be best if you adopted specific practical measures to mitigate the effect of divorce on your credit score. Make sure to talk about the following with your lawyer:

  • Changing your credit card accounts
  • Monitoring your credit utilization rate
  • Dealing with jointly held debt
  • Adjusting to a change in income
  • Repairment of damaged credit score

More details on these steps are given below:

1. Change Credit Card Accounts

If a husband and wife share a credit card, the card is usually placed in one of the partners' names, making the other half an authorized user. Most prominent credit card companies don't offer credit cards with shared customer accounts.

Collaborating to clear off these debts might be the simplest safeguard for your credit rating. If you succeed, there will be no problems with your credit record, and your credit rating will stay unaffected.

But, if collaborating to settle the debts is not feasible, you must remove your name from any accounts over which your former spouse is accountable as quickly as possible.

It will protect your credit record if your former partner fails to pay on time or an account under their name falls overdue. Similarly, you could also delete your ex-spouse as a registered user from any accounts that you still have authority. This prevents them from amassing a considerable sum on your account.

2. Monitor Your Credit Utilization

Anticipate a minor drop in your credit rating should any of your accounts be discontinued since this will influence your credit utilization rate. This indicator determines the proportion of your credit available for use at a particular time.

Assume you have $30,000 in total credit available and are using $15,000 of it; your credit utilization rate is 50%. If you remove your name from a joint account with a $10,000 credit line, your available credit drops from $30,000 to $20,000.

And since you are not liable anymore for the said account, it reduces the level of liability you currently owe from the total credit balance you are utilizing. These adjustments will undoubtedly have an impact on your score.

If your credit utilization rate rises due to the separation, your credit rating could fall a few points.

3. Deal with Jointly Held Debt

If you and your partner hold joint obligations, like a car or mortgage liability, it might be challenging to get your name, or theirs, withdrawn from the responsibility. Even though the divorce order may specify who is accountable for the loan, the creditor could persist in holding both husband and wife legally responsible for repaying the debt.

If your former spouse is expected to provide payments but delays or makes no payments, such irresponsible conduct will also appear on your credit history for as long as your name is still on the debt. Therefore, it is advisable to get all joint debts refinanced by the individual who will ultimately be accountable for the future repayment of the loan.

As a result, the other side will be released from the debt. If there is a house mortgage in both of your names, then the only option could be to dispose of the home if both sides refuse to accept total accountability for such an obligation.

4. Adjust for a Change in Income

Your earnings will likely fluctuate, indirectly influencing your credit rating. Shifting from two earners to only one constitutes the most significant difference. Sometimes, child support or alimony payments may be insufficient to compensate for the decline.

This is particularly true for females since the U.S. Department of Labor estimates that in 2021, females still make 82 cents for each dollar males earn.

With reduced total earnings, you may not have enough for credit card and loan payments due, which increases the likelihood of missed or late payments. This would lower your credit rating.

However, suppose you want additional funds for unforeseen costs like auto repairs, a recent power bill, or medical fees. In that case, Simple Fast Loans may be able to assist you, irrespective of your credit condition. Simple Fast Loans allows you to apply for a personal loan from the convenience of your own residence.

With fast approvals and next-day funding, you can get up to $3,000 as soon as the following business day.

5. Repair a Damaged Credit Score

Paying on time is an excellent strategy to improve an impaired credit rating. Even if you can only cover the minimum amount owed, you must pay on schedule so that your credit rating does not sustain any additional damage. To further lower your liabilities, try to pay extra at any time if doable.

Opening independent accounts in your name is another strategy to improve your credit rating gradually. If your credit rating is low, you might only be eligible for a secured credit card, which requires you to deposit a sum that will function as your credit line.

When your credit history improves, you may be eligible for an unsecured card, which you may use to enhance your credit rating.

But, while striving to improve your credit, don't overextend yourself by establishing additional credit cards. Registering for a credit card triggers a strict review of your credit history, lowering your credit rating somewhat. Likewise, creating numerous accounts lowers the average age of your accounts, which may impact your credit rating.

Nevertheless, if you've been looking for a new auto or house loan, credit queries from such creditors are unlikely to harm your creditworthiness.

Another alternative is applying for a debt consolidation loan to cover your credit cards. Instead of relying on typical bank lenders to investigate you, you might also approach firms like Simple Fast Loans. The organization offers adjustable repayment options that simplify paying back the debt, regardless of your financial status.

Even though the end of a marriage might not directly influence your credit rating, there are various ways in which your credit rating could suffer indirectly both during and after the divorce proceedings. So, you should be aware of the many problems that may happen during a divorce and potentially hurt your credit history to prepare.

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