It’s fully expected that divorce will be emotionally challenging, but many people aren’t prepared for the financial difficulty that is so common during and after the divorce process.
Dividing debts isn’t always a smooth process. Additionally, if the credit cards, car loans or mortgage are in one spouse’s name, the other spouse may find themselves without much credit in their own name.
Follow these steps to improve credit after a divorce.
1. Close joint accounts.
Do you and your ex have joint credit cards or checking accounts? Are you on the same insurance plans? Close any joint accounts you can once you divorce.
If there are joint accounts that need to stay open, you need to make sure the bills continue to be paid. If you don’t trust your ex to pay the bills on time, you may want to be in charge of those accounts to ensure your credit isn’t wrecked due to late or missed payments.
2. Separate your debt.
According to credit bureau Experian, your divorce decree doesn’t change your contracts with your lenders. Instead, “The decree is only an agreement between the court and the divorcing couple with regard to who will make the debt payments on each account.”
This means while you and your spouse can agree on who is responsible, only the lender is able to change the names on the contract.
Accordingly, “Only the lender can change the contract, and as long as your name is on the contract, the account will be reported to your credit history,” according to Experian.
Because of this, you need to contact your lenders and ask them to change the contract to separate responsibility. This allows them to designate you or your ex as responsible for the debt.
If your ex has a car payment or other loan or line of credit you no longer want to be associated with, you must contact the lender and get your name off the contract.
If you leave your name on it and your ex doesn’t pay his or her bills, your credit will be negatively impacted. The lender may not agree to do so if they think one person may not be able to pay the debt.
According to Experian, “The lender may require that the balance be paid in full before removing one party from the contract.”
“While you have plenty to worry
about, don’t let your credit slide.”
3. Keep an eye on your credit.
Consider regularly checking your credit report for several reasons.
First, if you had a messy divorce and fear your spouse may intend to do damage to your finances or steal your identity, you will be able to see if they are opening any new accounts in your name.
Second, you will be able to see how closing accounts affects your personal credit so you know if you will need to focus efforts on building good credit.
4. Maintain or build good credit.
During this time of turbulence, it’s key to maintain your credit by paying all bills on time.
Additionally, you may find that once you close your joint accounts with your spouse, you have very few lines of credit left in your name. If this is the case, you need to begin building credit.
Women who plan to change their last name should do so before applying for new credit.
One of the best ways to build credit is to open a credit card and begin using it regularly. When you pay your bills on time, you will begin to establish good credit.
If you can’t qualify for a regular credit card, you can get a secured credit card, which requires collateral. After several months of responsible use, you will likely be able to qualify for a regular card.
Some credit unions also offer small personal loans with collateral to help people build credit.
While you have plenty on your plate to worry about during a divorce, don’t let your credit slide.
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