At Pelican, we often say “bad things happen to good people.” We understand that sometimes life happens, and it doesn’t matter if we planned for it or not.
We wanted to shed some light on something that isn’t fun for anyone involved—divorce. Getting a divorce can be extremely stressful and painful for both parties, but can also have lasting effects on your finances. As we’ve talked about before, though, it’s nothing we can’t overcome.
If you’re in a position in which divorce is likely, we wanted to provide some information that we believe will be helpful for you as you prepare for this new lifestyle.
Let’s take a closer look at the truth about divorce and credit.
Where to Start
The dissolution of a marriage can affect many aspects of your life and leaves both spouses rebuilding their lives. A divorce can also lead to both parties struggling financially as well.
Losing one of two household incomes could cause financial strain that leads to missed payments on your credit cards, loans, and other bills. It’s important to protect yourself and set a plan for financial independence moving forward.
You’ll want to start by hiring an attorney that you’re comfortable with that specializes in this area of the law. Your attorney will advise you on all the legal details involved in the divorce process such as child or spousal support.
How Divorce Can Affect Your Credit
Your marital status does not appear on your credit report, so a divorce itself will not lower your credit score. However, how you handle any joint accounts with your former spouse can have an effect on both your credit report and theirs.
During a divorce, a judgement is placed by the court, which will divide a couple’s debts and assets. The court will indicate which party is responsible for paying certain bills while dividing property and other assets. Generally, this is done in order to balance both debts and assets equally.
The judge may assign one of you to pay a joint debt and it’s important to know that the creditor always supersedes a judgement and you will still be held accountable.
This means that account information (including negative items such as late payments) can be reported to the credit bureaus and added to your credit report if you’re still associated with the account. If one of you fail to make timely payments on a debt that’s considered joint, it will affect both individual credit reports. This is because a joint debt has to be reported on both you and your ex-spouse’s credit reports.
How to Protect Your Credit and Finances
After a divorce is finalized, sometimes people have accumulated significant legal bills and other debt. This can hinder your future financial goals like being approved for loans, mortgages, and credit cards.
Maintaining a positive payment history and minimizing your debt during and after the divorce are keys to keeping your credit score intact.
Protect yourself by getting a plan in place to manage your finances. Here are some ways to do that:
- Close any joint checking accounts and open your own personal checking to ensure all deposits and transactions are separate. You’ll also want to remove your name from any open accounts your ex-spouse continues to use.
- Create a new budget or modify your existing one. You may need to adjust your lifestyle because of the reduced income. Prioritize your most important expenses and keep up the payments that have a direct impact on your credit score.
- Cut or limit unnecessary expenses by evaluating your spending habits. Some common examples include cutting cable and subscription services and limiting restaurant or personal care spending.
- Monitor your credit report to make sure no late payments or new accounts are opened since filing for your divorce. You’re entitled to a FREE copy of your credit reports every 12 months from nationwide credit bureaus by visiting annualcreditreport.com.
How to Independently Rebuild or Establish Your Credit
This is an opportunity to start your personal and financial life over again and make positive changes!
Develop a supporting network of family, friends, co-workers, and church members who can offer advice and encouragement. If you established credit before you got married and maintained a solid credit history throughout your marriage, you can emerge with your good credit still intact.
Pelican offers credit counseling sessions that are completely free to Pelican members! Our Nationally Certified Credit Counselors can help you create a plan that will ensure a successful financial future for you and your family. If you’d like to speak with a credit counselor, please contact us at 1-800-351-4877 or our online form on our website.
*You have the right to a free credit report from AnnualCreditReport.com or 877-322-8228, the ONLY authorized source under federal law. Credit counseling is intended to give you the financial education you need to make informed decisions. Results may vary. Pelican and its employees are not responsible for any claim, suit, action or damage resulting from credit counseling.
Once a Pelican State CU member, always a member—through life’s milestones, we’ll always be there to help you with your financial needs. Your Financial Family for Life. Give us a call at 800-351-4877.