credit and divorceIt can be important to consider the state of your credit when you are getting a divorce.  During or after you may want to get a loan, say for a house or a car.  Your eligibility and the loan interest rate will be likely be based in part on your credit score.

Credit Score

There are different credit scores but the one that is by far the most important and most widely used is FICO.  Your FICO score is based on five factors, which are weighted as follows:

  • Your payment history (paying on-time vs. late) – 35%
  • Your credit balances – 30%
  • How long you’ve had the credit – 15%
  • Whether any of the credit is new – 10%
  • What types of credit you have – 10%

Credit Report

It’s often a good idea for both spouses to obtain a credit report during your divorce.  You can obtain one free of charge from annualcreditreport.com.  This can serve several purposes:

  • Making sure all debt has been identified and accounted for in the divorce settlement
  • Identifying any credit-related issues that may be relevant in the divorce
  • Identifying any mistakes in your credit reports

There are three credit monitoring agencies: Trans Union, Experian and Equifax.  You should check each one because they may not all have the same information.

Credit and Divorce

In a divorce, all assets and debts need to be listed and valued accurately.  And then they need to be divvied up.  A divorce mediator and/or a Certified Divorce Financial Analyst can assist you with this. 

It’s possible that debt and credit scores may be important post-divorce.  And they might have an impact on the support that is agreed.

Beware of joint accounts.  These include accounts you signed up for together and ones on which you are a co-signer.  Even if your divorce judgment assigns responsibility for these accounts to one spouse, providers of credit have the right to go after either joint account holder for payment.  And if your spouse doesn’t pay an account on-time, both of your credit scores will get dinged. 

It’s therefore usually wise to close all joint accounts either during the divorce or soon afterwards.  If the balance is zero, you can close them right away.  If it’s not zero, pay off the balance, preferably as part of the divorce settlement, and then close the account.

If you are an “authorized user” on an account that is in your spouse’s name, the lender can only go after your spouse for payment.  However, the account may appear on your credit report.  So it’s a good idea to remove yourself as an authorized user.

Credit Monitoring

There are low-cost credit monitoring services.  These alert you to possible issues with your credit report.  It may be wise to sign up for one of these, especially if you think it’s possible your spouse might do something which could harm your credit.

It’s also possible to place a freeze on your credit with the three credit reporting agencies.  This might make sense if you think your spouse might harm your credit standing.

Building Credit

Sometimes a divorcing spouse has very little or no credit and therefore a relatively low credit score. This may harm your ability to get a loan if and when you need one.  You can fairly quickly build credit by obtaining store cards, gas cards and credit cards.  Then:

  • Pay them early or on-time;
  • Maintain low balances;
  • Don’t allow third-party inquiries to your credit unless necessary;
  • Use the credit in a regular and healthy way.

There are lots of articles on the internet that give other tips on how to improve your credit score.