There’s enormous power in those three little digits.
When you’re going through a divorce, it seems like you’re surrounded by dollar signs and considerations about your financial future. But is it really necessary to add your credit score to that growing list of concerns?
Is A Healthy Credit Score Really THAT Important?
While credit reporting and the scales being used to rate an individual’s credit worthiness have changed a bit over the years, the sentiment has stayed the same.
There’s usually a range of numbers (let’s say 500-900), and your score (based on factors such as history of your credit accounts, whether or not you repaid the debts on time and the ratio of debt to available credit) is determined within this range.
With this score in hand, lenders, services and other entities can then assess whether or not they’ll be able to extend credit, service or better rates to you. And as someone who’s going through a divorce and will have to make some lifestyle changes and adjustments, having a favorable credit score could prove quite helpful.
What are some reasons for needing a healthy credit score?
- Establishing a mortgage for a new home
- Getting a loan for a new car or student loans
- Opening credit accounts for purchases and expenses
- Qualifying for better insurance rates
- Applying for certain jobs which require a check of your credit history
We’re an economy and a society that runs on credit, so it’s important to know your score and the factors that contribute to it.
Okay, But Does Divorce Affect My Credit Score?
I recently had the chance to chat with Julie Springer, Senior Vice President of TransUnion, on the effects of divorce on an individual’s credit score.
The short answer: Divorce alone won’t affect your credit score, but some of the financial changes associated with the process could certainly make an impact.
Ms. Springer mentions the fact that many couples co-sign for loans and credit accounts, and as these accounts are closed with the divorce, individuals may see changes to their credit report and score.
- The individual being removed from an account will see their history with that account end.
- The individual now minting the open account could see a rise in their ratio of debt to credit.
- Any late payments are now the sole responsibility of the individual with the account.
Springer’s example: A couple has an account with a balance of $1000. During the divorce, person A is removed from the account, which means their history with that account is now complete on their credit report. Person B is left with a $1000 balance to pay off, which could likely affect their debt to credit ratio (a factor that is considered when determining and individual’s credit score.)
Tips For Minimizing Negative Effects Of Divorce On Your Credit Score
Ms. Springer also had a few ideas to help individuals minimize any negative effects changes from a divorce may have on their financial accounts.
- Split accounts, debts and savings — If you can’t split the responsibilities of an account, divide the responsibilities of a joint debt. (For example: The person living in the house takes on the mortgage, the spouse who takes the car gets the auto loan, etc etc.)
- Make a list of current debts and the payment due dates — Your spouse may have handled paying the bills, so it’s important to know the who, what, when and where to help avoid missing any payments.
- Remove each other as authorized users on accounts — If he or she misses any payments, this can negatively impact your credit score.
- Create a post-divorce budget — Splitting one household income into two can change your spending habits and lifestyle, so it’s important you create and implement a realistic post-divorce budget to help curb any extra spending which may cause you to go into debt.
- Check your credit report — Make sure you stay on top of your credit report, especially a year or so after the divorce. This will allow you to spot any changes that may have happened as a result, including any missed or late payments on accounts in your name.
There are a variety of services and tools to help you view, manage and monitor your credit report, but I definitely recommend you first start by checking your report and score with TransUnion.
Being savvy with your finances is the quickest and easiest way to minimize (and even avoid) the negative effects of divorce in your life. Dodge a drama-filled divorce and spare yourself the heartache of a messy ordeal by getting your free copy of my ebook, “The Pitfalls of Divorce: Avoiding the Five Most Common Mistakes Couples Make During Divorce.”