Getting divorced can affect every part of your life, right down to your credit score. Disentangling your finances from your spouse may raise or lower your score, depending on your financial situation.
Maintaining a solid credit score is essential as you prepare for your divorce to be finalized. One of the best things you can do to protect your future is to guard your creditworthiness against the potential negative impacts of ending your marriage. Keep reading to learn how your wedding may have affected your credit score, why getting divorced could help or hurt your score, and how to protect your FICO report.
How Marriage Affects Your Credit Report
Your FICO credit report is not connected to that of your spouse. You both maintain independent scores that are not impacted by the other person’s past behavior. However, getting married can still significantly impact your creditworthiness.
How? The answer is simple: joint accounts. Most couples combine their finances to some extent after exchanging vows if they hadn’t already. This is particularly common when spouses open new credit cards or buy real property like a home or vehicle together.
Your report may not be linked to your spouse, but joint loans and lines of credit will appear on both of your reports. If both of you are listed on the title of your new home, the mortgage will affect your reports equally. The same goes if your spouse adds you as an authorized user on an account or if you open a card together.
This may or may not be a good thing. New lines of credit, like brand-new mortgages or credit cards, have a mixed effect on your score. They reduce the average age of your overall credit history, which may reduce your score. However, they can also improve your history of on-time payments and increase your credit limit, raising your score. Either way, couples’ FICO scores are usually functionally intertwined by the time they divorce.
The Impact of Divorce on Your Credit
This intertwinement is why divorce affects your score. As you divide your assets and begin your new single life, you may find your report is impacted by events like:
- Closing shared accounts: As you divide your assets, you will often close shared accounts. This can include selling your home, refinancing the mortgage in your own name, and closing joint credit cards. When these accounts close, they reduce your overall number of lines of credit and may also reduce the overall length of your history, which can hurt your score.
- Removal from longstanding accounts: Similarly, if your spouse removes your name from one of their cards, it will no longer appear on your history, for better or worse.
- Paying off joint debts: When you’re removed from your spouse’s account, the debt associated with the account will also disappear. You may also pay off joint debts from your liquid assets, improving your overall utilization rate and creditworthiness.
- Defaulting on joint debts: The stress and administrative work involved in a divorce may make it all too easy for you or your spouse to miss a payment on a joint account. If this occurs, the default will appear on both of your reports and reduce your creditworthiness.
In short, divorce primarily affects your FICO score because you and your spouse’s joint accounts are separated, reducing the overall number of accounts and history on your report. It may also cause you or your spouse to miss payments, which may impact both of you.
Avoiding Negative Financial Consequences During Your Divorce
A good score is invaluable as you begin your new life. You need a solid score to buy a new home, rent an apartment, or even get new cards. As such, learning how to protect your FICO score during divorce is essential. Here’s what you can do to avoid the worst of the consequences:
- Consider removing your spouse from a longstanding account instead of closing it. Many lenders will allow you to remove your spouse from an account with their written permission or a court order. This can help keep your history length from being impacted.
- Keep a close watch on all bills. As long as your name is still on an account, you remain responsible for paying bills on time. Prioritize having your name removed from accounts you do not want. Until that happens, you must ensure the account is paid, or it will hurt your score.
- Transfer debts if possible. Debts you and your spouse accrued during your marriage will be divided just like your assets. It may be worthwhile to grant your spouse a larger share of your marital property in exchange for them taking on the debts. This can help you start your new life with minimal debt, giving you a better credit utilization rate and improving your score.
By committing to paying your bills and carefully considering your debts and accounts, you can keep your divorce from impacting your finances and your FICO score more than necessary
Protect Your Future With Skilled Legal Counsel
Can divorce hurt your credit? Yes. However, it doesn’t have to. In fact, divorce can help your creditworthiness in certain circumstances. It depends on your approach and what you do to avoid financial penalties. Skilled legal counsel can help you protect your credit score during a divorce. The experienced high net worth divorce attorneys at Kaspar & Lugay, LLP, understand the financial complexities you face. We can guide you through dividing your assets and debts and closing or transferring accounts to minimize the negative consequences of divorce. Schedule your consultation today to learn how we can assist you and protect your FICO score when ending your marriage.