Your Credit Score and Your Divorce

Since your credit score tracks your history as an individual regardless of your married state, your credit score is not directly impacted by a divorce, per se. It is, however, impacted by the dividing of assets, change in accounts, and possible change in income that can occur in the event of a divorce. Usually, that means that your score will drop, but there are ways to limit that drop and ways to build it back up again. 

In my practice as a divorce attorney specializing in mediation and collaborative law in Doylestown, Bucks County, I have helped many couples work together to protect their credit scores and successfully build back their future credit. In order to preserve as high a credit score as possible, contact me as soon as possible in your separation or divorce process so I can help you take immediate steps. 

What is a credit score?

Your credit score is a value that helps lenders determine your creditworthiness. It is based on your payment history, the amount of credit available vs. how much is used, types of credit, the length of credit history, and how many recent requests you have made for credit. 

There are several different national consumer reporting agencies (CRA) that determine credit scores – Equifax, TransUnion, and Experian – whose scores may vary somewhat, depending on how they weigh different criteria.

Steps to preserve your credit

You have the right to request one free copy of your credit score each year from all three major CRAs by visiting annualcreditreport.com, calling 877-322-8228, or completing the Annual Credit Report Request form.

Once you have your credit score, review it carefully. Sometimes there are mistakes or suspicious activity, especially if you have doubts about how your soon-to-be-ex is handling money. You will need to address those issues immediately.

Next, address the joint accounts that you share with your spouse. Open separate accounts in your own name and quickly come to an agreement with your spouse about how to use the joint money and how to divide it. If your divorce is amicable, you may be able to do this verbally before meeting with attorneys. For instance, you may decide to use the joint money only for bills and child care but not for personal items. However, in my experience, your divorce will go more smoothly if right from the beginning you make an agreement in writing, with the help of a mediator or attorney, and have it signed and notarized.

Once you have created separate accounts, you can begin closing the joint accounts and transferring the money equitably. The actual closure may need to wait until your divorce is settled, however, which is one of the reasons why I focus my practice on mediation. The mediation process helps couples settle their divorce as quickly and inexpensively as possible and with the least amount of stress and negative fallout. When a divorce goes to court, years can go by, which means the joint money is usually tied up until the divorce settlement is complete. Every day I help couples reach amicable agreements in months rather than years, which allows them to divide their finances in a fair manner that satisfies both parties and preserves the family bond which is so important when children are involved. 

Joint expenses are another issue that must be addressed. Your creditors do not care about your divorce – they just want to be paid. Allowing bills to go unpaid as you argue with your spouse about who should pay will damage both your credit scores. It is better to agree to keep the bills paid and plan to make financial compensation part of the divorce settlement than to hurt your credit score by leaving expenses unpaid.

Joint expenses will need to be renegotiated as part of the divorce settlement, with one or the other party taking responsibility for the expense or paying it off through the sale of assets. This is all part of our discussion in a mediated or collaborative divorce. 

Building back your credit

The opening of accounts in your name will likely decrease your credit score, but it also gives you the opportunity to begin to build your credit back in your own name. If you have little or no credit, which is often the case for women who stop working in order to raise their children, you may have to get a secured card at first. This has limited credit, but as you pay your bills on time, your limit increases and eventually you will be able to apply for a standard credit card. Get your free credit report every year. Watch how it increases, and talk to an advisor at your bank about how to improve it further.

If you haven’t yet set a date of separation, that will be your first step to starting your new financial future in your own name. Reach out to me as soon as possible at our Doylestown, PA office so we can secure your current assets and begin the process of an amicable divorce settlement. Call (215) 345-5259 for a complimentary initial consultation.