It’s no secret that divorce is extremely stressful. Many spouses admit that aside from child custody, the financial aspect of divorce is one of the biggest stressors. You’ve probably heard the horror stories, the ones where divorcées complain about how the divorce ruined their credit. Some of these are true but that doesn’t mean that your divorce has to affect your FICO score.
If you’re like a lot of people, you co-signed on one or two auto loans with your spouse. If you own a home, you’re probably both on the mortgage. Then there’s the credit cards; you may have several joint credit card accounts. At the time, co-signing made sense. After all, you may have needed to use both of your incomes to qualify for the auto loan or mortgage. When you signed the contract, you probably didn’t have much of a choice.
Most of your finances will be sorted out in the marital settlement agreement. However, a lot can slip through the cracks if you aren’t meticulous about your bills. In a divorce, people can encounter credit problems when they mishandle their joint accounts and co-signed loans. Let’s take a closer look at how divorce can impact your credit and the steps you can take to prevent your credit from being damaged by the process.
Divorce Doesn’t Damage Credit Directly
For starters, we want to point out that divorce does not damage credit directly. While it’s a court proceeding, it does not affect credit like a Chapter 7 or 13 bankruptcy, a judgement or a lien. Credit scores are not affected by a person’s marital status. Credit scores are, however, dependent on the following factors:
- Payment history
- The age of accounts
- Credit inquiries
- Amount of debt
- Late payments
We mentioned earlier how things can “slip through the cracks.” Usually, this happens to credit card debt. If you have a lot of credit card debt that you’re sorting out through the settlement, it can be easy to miss a payment, especially when you think your spouse is taking care of it. Remember, any joint accounts or co-signed loans will show up on both of your credit reports. This includes missed payments, maxed out credit lines, and collection activity related to those accounts.
If you ignore any of these accounts because your spouse agreed to pay it, your credit can be damaged. In other words, you want to pay attention to these accounts and ensure they are paid. If your spouse misses a payment or lets an account go to collections, it’s going to affect your credit because your name is on the account. For your credit’s sake, it’s better to make the payment and take your spouse to court later.
Something else to remember: If you are ordered to pay child support and you fall behind, it can be reported on your credit report and affect your credit score. So, it’s best to pay your payments on time. If something happens and you can’t afford your payments, go to court immediately and ask for a downward modification. Otherwise, if you don’t pay, you’ll still owe the full arrears and they will probably be reported on your credit.