How Does a Divorce Affect Your Credit?

Divorce, in and of itself has no bearing on your credit.  However, if you have joint accounts with your ex you could be in for trouble, even if debts are listed in the divorce decree as being the responsibility of your ex spouse.  As far as credit is concerned, the divorce decree really has no relevance.

A divorce decree does not supersede the original agreement between the borrowers and the creditors. So if, for example, you have a joint Chase credit card that was awarded to your spouse in the divorce decree it will continue to report to your credit report. That will include any late payments your ex spouse may incur. The same applies to any mortgages. The home and mortgage that goes with it may become the sole responsibility of only one of the owners per the divorce decree but in the eyes of the mortgage company both are still responsible for the loan and if one of the parties incurs a late payment it will still affect both borrowers.

If a consumer is going to be getting a divorce or is in the process of, there are proactive steps that should be taken that can help mitigate a negative impact to your credit. If you have joint credit cards, first try and have it converted to an individual account. Some credit card companies may agree to this. This option would be optimal because you will still retain all the credit history from that card. If they won’t, the best thing to do would be to close the account completely. If it has a balance, the payments will still need to be made until it is paid off. But once it’s closed at least it can no longer be used. If the card is being awarded to your spouse in the divorce decree you should still be prepared to make payments on the card if your ex misses any.

There is also the possibility that a credit card belongs to one person but the spouse is an authorized user on the card.  Have the spouse removed as an authorized user so they no longer have access to the card.

If a mortgage is involved in the divorce the best thing to do is have the house refinanced out of the spouse’s name that is not being awarded the home.  This is best to do as soon as possible during the process of the divorce or immediately after the divorce is finalized.  Refinancing is the only way to remove someone from a mortgage.  It has to be refinanced out of their name. The mortgage company won’t even take into consideration that the home and subsequent loan was awarded to a specific person in a divorce decree. The same is true for any joint auto loans you may have.  Whoever is awarded the automobile will need to refinance that loan out of the spouse’s name.

Any utilities, cell phones, etc. that are in both parties names should also have the ex spouse removed from them.  While these entities normally do not report to the bureaus, if payments stop they will be turned over to a collection agency and they do report to the bureaus.

It is also best to plan on monitoring your credit report on a monthly basis for at least the first 12 months after the divorce is final. This way you can ensure that any joint debts that have not been separated are being paid on time and that nothing new is being opened in your name.

A divorce can be a painful and messy procedure. However with a little foresight and planning, a person can at least hopefully prevent their credit reports from being compromised. It will just take a little time and cooperation from both parties involved.