The Impact of Divorce on Credit Scores

The divorce process typically separates many aspects of the life that you and your spouse shared. Each party may be assigned responsibility for specific debts. What you may not realize is how that assignment relates to credit reporting and the impact of divorce on credit scores. The information below will help answer some of those questions.

Impact of Divorce on Credit Scores

couple-fighting-2-150x150Most people going through divorce find that their credit scores drop. This often occurs because of the general cost of divorce. Each spouse incurs debt from the legal proceedings and must also maintain a household on a single income. It is natural that each may rely more on savings and/or credit cards to cover this added expense. During difficult months, each is also likely to be late on making certain payments. Increased use of credit lines and late payments will both reduce credit scores.

Assignment of Debt

Your martial debts may be in both you and your spouse’s name or in just one person’s name. Courts do not assign debts based on whose name is on the account. Therefore, you may responsible for paying a debt that is in your ex-spouse’s name, and vice versa. There may be less motivation to pay on-time when your own credit report does not benefit from that good behavior. In difficult divorces, one party may even intentionally submit late payments to reduce the score of the other party. Since payment history plays a large role in credit scoring, this can have a detrimental impact.

Lessening the Impact of Divorce on Credit Scores

For your own benefit, the best thing to do during a divorce is to remove your name from any accounts that you will no longer be responsible for. Unfortunately, this is easier said than done. The name on accounts are not changed in the divorce process. That arrangement is between creditors and borrowers and really has nothing to do with divorce proceedings.

In order to remove names from joint accounts or change names on accounts entirely, the existing debts would need to be paid off. If funds are not available for a payoff, it may be possible to perform balance transfers to new accounts. The person responsible for those new accounts would have to qualify, which may not always be possible. For secured debts such as mortgages and auto loans, there is an option to refinance to a new loan but, again, you would have to qualify.

Improving Credit Scores After Divorce

There may be ways to reverse the impact of divorce on credit scores and improve your scores. Speak with a credit repair consultant for information. For a free consultation, call FIT Credit at 215-613-8130.