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Divorce can have a major impact on your credit and your ability to start your new life on strong financial footing.
However, the impact doesn’t have to be negative. Recently we wrote about the importance of organizing and planning your divorce. Careful planning and the help of an experienced Monmouth County divorce lawyer can actually improve your financial situation through the separation process.
Citizens’ Voice recently looked at the two most common misconceptions about credit scores and divorce:
- Creditors Don’t Care: Your creditors don’t care what your divorce decree says. If you have joint debts (credit cards, car loans, home mortgages), you will be considered financially responsible for the term of the loan regardless of who agrees to pay in your divorce settlement.
- Joint Accounts still Count: Your former spouse’s future credit may be factored into your score if you share joint accounts, even if you take your name off the account.
Protecting Your Credit During Divorce
To understand the potential impact of divorce on your credit score, it’s important to review the factors used in determining your score and why they are important.
FICO is the credit score used by most originators of mortgages, auto loans and credit cards. Your scores are maintained by the three primary U.S. credit-reporting agencies, Equifax, Experian and TransUnion. Factors impacting your score include payment history, credit utilization, length of credit history, amount on new credit and your credit mix (number of mortgages, credit cards, car loans, etc.)
Divorce most commonly impacts payment history and credit utilization. Making late payments, or maxing out your credit cards, will obviously lower your score. However, divorce also impacts your score in less subtle ways when it comes to credit utilization. For example, closing joint accounts may reduce your overall available credit (and/or impact credit history calculations), which can make you appear to have a shorter credit history and/or look like you are using a much larger percentage of your available credit.
Divorce may also result in applications for new credit and credit inquiries, both of which can lower your score. An experienced divorce attorney in Monmouth County should manage the impact of divorce on your credit score, just as she should work to mitigate the impact of taxes and other financial consequences of a separation.
Careful review of data maintained by all 3 credit-reporting agencies is critical to determining the full extent of assets and liabilities held by both you and your former spouse. This makes divorce a great time to clear up anything having a negative impact on your score.
There is evidence that the consequences of divorce on credit scores may be disproportionately impacting women. Primarily, this is because of an income gap. The Bureau of Labor Statistics reports that the average full-time, weekly wage earned by men is $991, compared to an average of $796 for women. Women may also have shorter or less complex financial histories, which can impact their scores when it comes to credit mix and length of credit history.
The truth is that divorce is an excellent time to get your financial house in order. From closing a joint account, to filing for bankruptcy, having a comprehensive discussion with your divorce attorney about your financial future can help ensure you choose the best path forward.
Call Rozin|Golinder Law, LLC today for a free and confidential consultation.