The increasing use of credit scoring by banks, insurance companies and merchants is proving a dangerous trend for many women, especially those in the midst of a divorce. Particularly vulnerable are women who throughout their marriage had held credit cards, mortgages, bank loans and other credit lines jointly with their husbands. Not having worked for many years, they had not established an independent line of credit.

As a Divorce Financial Planner, I see women suffer disproportionately from the intensified use of credit scoring. Here's an example: Laurie had been married for 14 years. Her husband Joseph was the sole wage earner in the family. They jointly held all credit cards, loans, mortgages and an equity line of credit. Upset with her husband's infidelity, Laurie sued for divorce. Joseph is now too depressed to pay bills. He resents having to pay Laurie's credit card purchases and the mortgage on the house after he moved out. By the time the divorce is finalized, their joint credit rating has been severely affected.

Without any past credit history in her own name, and the damage caused by Joseph's failure to pay bills, Laurie suddenly finds she can only qualify for the highest interest bearing credit cards. She has to refinance the mortgage, renegotiate homeowners' insurance and reapply for auto insurance, all at much higher interest rates. The added interest cost dramatically increases her expenses beyond the budget that was used to determine alimony.

Laurie faces the prospect of paying higher interest charges for years, because she had a poor dredit score. Banks and insurance companies, among others, calculate a "credit score" based on a person's financial history, using a complex mathematical formula. The formula is kept secret, and measures the risk factors that a creditor would use to determine whether to make a loan. Federal law, which requires credit reporting companies to give consumers access to their credit records, does not apply to credit scores.

Unknowingly, and through little fault of her own, a woman may face a bleak financial future if her credit history, linked jointly with her husband, is suddenly blemished during the divorce. With only a tarnished joint credit history and now marked with a low credit score, the newly divorced woman risks losing her existing policies and credit cards. She may find it nearly impossible to find alternatives at any cost.

Women must focus on financial planning during divorce as a necessity to prevent making mistakes that could haunt them for the rest of their lives. A divorce financial planner can quantify for the attorney how to take all of these factors into consideration when negotiating the terms of divorce: treating the cost basis and the continued coverage of existing insurance policies, mortgages and outstanding loans as being significant marital assets for the women who lacks independent credit standing. Most attorneys consider them simply as routine living expenses. In point of fact, the most important bargaining chip in a divorce may soon become who gets to keep what in whose name.
 


Lili A. Vasileff is a specialist in divorce financial planning and investment advisory services for women. Her e-mail is lvasileff@aol.com.