Divorce and Your Credit: Myths and Facts

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Impact on credit history, report, scores when going through a divorceOne of the biggest worries most divorcing couples have is how divorce affects their credit and finances. It’s a complicated issue that needs to be addressed in your divorce process.

This post addresses the myths and facts of the impact of divorce on your credit history and scores.

Be sure to also check out the links in the “Resources About Divorce and Your Credit” section below. As always, please consult the appropriate professional before taking action on information provided here.

Divorce and Credit Myths and Facts

Let’s look at the most common myths about the relationship between divorce and credit.

Myth 1: Husband and wife have one shared credit score.

False. Each of you has your own separate credit history that began with the first credit card or loan you individually signed up for (car, mortgage, student loan, etc.). You also have your own credit score based on your individual history. The most commonly used score is the FICO® score.

Also, each person has more than one score. Each credit reporting agency calculates its own credit score. All of the credit bureaus (the main ones are Experian, TransUnion, and Equifax) use the same criteria to judge your “credit worthiness.” While the bureaus often come up with similar scores, those scores can vary because they have different information and may analyze it slightly differently.

Conversely, if you’ve never used credit, you may not have a credit score or report.

Myth 2: Just being married or divorced affects your credit score.

False. Your marital status, age, gender, race, job status, savings / investments, and income have no impact on your FICO score. The main thing that matters is your credit history—whether you pay your bills on time. See also the other credit score factors.

Myth 3: A marriage or divorce doesn’t impact credit scores.

False. It’s not the legal status of the relationship that matters where your credit scores are concerned. It’s whether you opened a joint credit account together (credit card, mortgage, car loan). How you and your spouse / partner manage those joint accounts will continue to affect the credit scores of both of you regardless of whether you marry or divorce.

Note that being an authorized user of a card is not the same as being a joint account owner. If you are an authorized user, you get a credit card in your own name that you can use to make purchases, but you are not responsible for paying the bill. Your credit score will not be affected by the account owner’s payment history under the FICO scoring model.

If one spouse agrees to pay some of the debts, be careful. Your agreement is between the two of you, and not your creditors. Creditors can still look to you for repayment of debt even though your spouse agreed to pay the bills.

In community property states (not New York as of this writing), all debts that pile up during marriage are considered joint debts. That means the debts on individual accounts in your spouse’s name may appear on your credit report, and vice versa, despite not being joint accounts.

Myth 4: After the divorce is final, your credit score is no longer affected by your ex-spouse.

False: Unfortunately, your credit scores can be affected by your ex-spouse’s financial behavior long after a marriage ends. If you are still registered as a co-owner of a credit card that is also used by your ex-spouse, you are considered responsible for that debt, regardless of the state of your marriage. (As mentioned above, in some states, all accounts opened during marriage are considered joint, regardless of whose name is on them.)

Myth 5: When one spouse incurs credit card debt during the marriage, he or she is solely responsible for it during divorce or after.

It depends. One of the most common misperceptions during a divorce is that the divorce decree cancels previous credit contracts. In fact, the divorce decree is simply an agreement between you, your ex-spouse, and the court regarding who will take responsibility for paying the existing debts.

In a divorce, the extent of your liability for credit card debt depends on:

  • Whether you live in a common law or community property state,
  • Whether the debt is for a joint credit card, and
  • Who the debt is assigned to in the divorce.

The divorce decree does not remove or authorize the removal of a joint credit or loan account from your credit report. What information can be removed from a credit report and how to make that happens depends on many things. (See the “Deleting information [from your credit report]” link in the “Resources” below.)

In cooperation with the creditor, it may be possible for you and your ex-spouse to close a joint account and open new accounts in your own names separately.

Deleting a mortgage from either of your credit records will probably require refinancing the mortgage.

Before closing any accounts, however, make sure that all balances have been paid in full and on time. Keep in mind that closing joint accounts could lower your credit scores, especially if you close multiple accounts within a short period of time.

Proceed Carefully with Credit During and After Divorce

If at all possible, work cooperatively with your ex-spouse to find a path that does the least damage to your credit scores and helps you both regain solid financial footing. The links in the Resources list below can help you figure out that path.

Resources About Divorce and Your Credit

About Credit Scores and Reports

What Affects Credit Scores

Protecting Your Credit During Divorce

Post-Divorce Credit

Photo credit: iStockPhoto

About the Author: Mary Anne Shew is a Certified Content Marketer. For more information, please visit Creative Nation.

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