Remember your high school teacher warning you about how your bad behavior would end up on your permanent record? That was nothing compared to the impact that a bad divorce can have on your credit scores.
Most of us were never as lucky as Ferris Bueller so there was plenty of angst over what was in that file. Flash forward a couple or three decades and that ‘permanent file’ is hanging over you again. In addition to the emotional and psychological toll of a marital split, divorce can wreak havoc on your personal finances.
And here your credit report and credit scores will potentially have as much or more impact on your post-divorce life than any imagined ‘permanent record’ in the principal’s office.
When going through a divorce it is absolutely critical that you take proactive steps to secure your credit. As you take steps to begin a new chapter in your post-divorce life, you’ll need that credit to establish yourself and get on solid ground.
Unfortunately, in an age where we rely on credit, it is vital to have an accurate credit report. Credit scores have become ubiquitous in all aspects of our financial lives. They can affect the loan terms and interest rates we’re offered on cars and mortgages. They can impact the premiums we pay for insurance on our homes and cars. They can even affect whether or not we can get approved for an apartment lease or a job.
The Judge Said My ‘Ex’ Was Supposed to Pay That
Why is that credit card reporting you late on that credit card the judge ruled was supposed to be paid by my ex-spouse?
Your reaction to that frustrating answer is probably the same as my toddler Zach or Spence but it’s true.
The reality is that a court’s order in a divorce settlement has no bearing with a credit card company. If you both applied and opened a card jointly, then you’re both responsible. Period.
Unfortunately, from a credit report standpoint, once your “ex” misses a payment or defaults on a mutual debt, those derogatory items will remain on your credit report and negatively impact your score for years to come.
Fix Your Credit Before It’s Broken
So, what can you do to avoid this problem and those pesky black marks on your “permanent” credit record? Take action before the divorce.
It’s always a good idea for couples to have their own individual credit. It’s especially true as you contemplate or go through the divorce process.
To avoid problems, you should call your credit card companies and freeze the credit cards you jointly have to stop adding charges that you’ll end up fighting over later.
Next, establish credit cards in your own names. If there are recurring household expenses charged to a credit card, you can establish a plan for who will pay at the outset. You’ll have a clean slate and have an easier time showing who paid what when you’re in court as well.
If there are mutual debts on a joint credit card, you may even be able to do a partial balance transfer of the agreed upon amount to two new cards in each of your own names. This is best done as part of the agreement negotiated and presented to the court.
Special Note for Authorized User Credit Accounts
Sometimes folks get a spouse listed as an “authorized user” on credit cards. Sometimes this is done for convenience or maybe the spouse didn’t have sufficient or good enough credit to get listed on the card as a joint cardholder. After the divorce it is important to make sure that these accounts are being paid by the responsible party from the original credit agreement.
If these are not being paid, then the derogatory credit information will show up on your credit report negatively impacting your credit score. Although not guaranteed, these “authorized user” accounts can be removed from your credit report with a little work. The better action is to contact the credit card company before the divorce and have your “authorized user” status removed.
Trust But Verify: The Importance of Credit Monitoring
So, you have an agreement in place from the court. That’s great. And you can trust that the court and your ex-spouse will look out for you. Whether you believe that or not, the best thing you can do now is play a strong defense. You need to verify that what you expect to happen will happen when it comes to your credit. You need to regularly monitor your credit report and credit score and address any issues as you see them. You can do this for free by going to either www.AnnualCreditReport.com, a site provided by the Federal Trade Commission or www.CreditKarma.com, a private advertising-supported website.
Some of these steps may be easier to deal with if your split is more amicable. In any case, it’s important to be proactive and not just assume that just because you have a divorce decree that it’s a settled matter.