Credit scores are becoming more and more important. Not only are they the driving force behind what you will pay for a loan, but there is a growing likelihood that future employers, real estate brokers, and landlords will request a copy of your score. So it is important that you take steps to protect your credit rating no matter what your marital status.
There is an erroneous belief out there that a divorce decree can override an outstanding debt obligation. Not true! If you have a joint debt (like a mortgage or credit card bill) with your (ex) spouse, you’re both responsible for it unless you pay off the balance or renegotiate with the creditor. This means that until you separate your debt obligations, your credit ratings are inextricably linked.
One of the most common mistakes made during divorce is that couples frequently stop paying the bills. Although it can be galling to pay off debts that your soon-to-be ex has racked up, a tarnished credit record is often more costly in the long run. Here are five steps you should take to protect your credit rating no matter where you are in the divorce process:
1. Identify all joint accounts. A good way to do this is to get your credit report from each major credit bureau: Experion, Trans Union and Equifax. These reports will show open department store cards and credit cards that you might not have used in years. If you’re not sure whether your spouse is authorized to use a particular card, check with the creditor directly.
2. If possible, close all joint accounts immediately. This is easy to do if there is no outstanding debt. If, however, you owe something on the account and can’t close it, freeze it so that no one can continue to use it. Then transfer the joint debt from joint name to sole name. This has to be done equitably. Make sure to make at least the minimum payments on joint credit card bills while you are in the process of closing/freezing joint accounts. Even one late payment can affect your FICO score.
3.What to do with the home.In the case of a joint mortgage (secured debt) your best options are either to sell the marital home and pay off the mortgage (cleanest choice) or to refinance the mortgage in the sole name of the person responsible for paying it.
4. Keep in mind that you cannot refinance a home that is for sale.If you decide to refinance, make sure to do so before the divorce is final. Sometimes one spouse won’t qualify for refinancing on his/her own and it’s best to know this up front.
5. While you’re waiting to either sell your home or refinance it, make sure your mortgage payments are current.
Even if it is your spouse’s responsibility and you have to borrow from friends/family to do so, make certain the bill is paid. Remember that if the mortgage is in your name or joint name, missed payments affect your credit rating, too.
Any opinions are those of Elizabeth Cox and not necessarily those of RJFS. Raymond James is not affiliated with and does not endorse, authorize or sponsor this Web site any of the other listed Web sites, or their respective sponsors. Elizabeth Cox is a Certified Financial Planner™ and an independent financial advisor with Raymond James financial services, a member of FINRA/SIPC. She provides clients with a broad range of financial services including financial planning, pre- and post-divorce financial analysis, investment management, and retirement analysis. Elizabeth Cox can be contacted by e-mail at elizabeth.cox@raymondjames.com, or through her Web site, www.divorcefinancialservices.com. 