Let's face it - none of us plan on taking a financial hit after a divorce. But after lawyer fees, home buyouts, child support, and alimony, among other potential pieces of post-marital sticker shock, it can happen.
So, if you've been financially hammered by a marital split, should you despair of ever getting a loan or credit card again? “Not necessarily,” says Tracy B. Stewart, a College Station, Texas-based financial planner who specializes in rehabbing the financial portfolios of divorce clients. “If things don’t go as planned and you’re facing divorce, or are already divorced, there are several steps you need to take to protect your financial future.” Stewart says to first initiate a deep freeze on all of your and your spouse’s financial assets.
“Have your bank freeze your joint accounts so that both signatures are required for any withdrawals,” she says. “Then, protect your credit by immediately notifying your credit card issuers in writing of your impending divorce. Ask them to freeze your account and inform them that you will not be responsible for any new debt.”
Taking your first financial steps as a single individual again should also include applying for a credit card in your name alone, and closing a home equity line of credit or margin account that may be approved but not in current use, says Kurt Artecona, president and founder of CreditMD.com,
a Jacksonville, Fla.-based credit and lending firm.
“Seal all the doors and windows so no new debt is accumulating in your own name,” says Artecona. “Too much damage can be done if you leave spousal accounts open after you split up. It’s not worth the risk.”
Another tip. Make your credit report your new best friend, financially speaking. All too often after divorce, people allow their credit score to suffer as a result of incorrect data. “Check your credit report at least once a year and report any errors to the credit reporting agency and to your lender,” says Stewart. “Requesting a copy of your own credit report won’t affect your score (although it will if someone else requests one) and, thanks to a new law, you can get a free copy of your credit report from each of the three national credit bureaus each year by going to www.annualcreditreport.com.”
Stewart adds that it’s best to spread things out by ordering one credit report every four months. The three credit bureaus are Equifax, Experian and TransUnion. When reviewing your credit report, make sure your side of the story is documented. “If you run into financial problems during your divorce, you can put a letter detailing extenuating circumstances in your report,” says Stewart. “Lenders may be more lenient toward granting you credit if they know the reason for any prior payment problems.”
Artecona adds that, by law, you have the right to include a 100-word statement in your credit file. “The statement should list any extenuating circumstances that could possibly mitigate the negative credit information in your credit report,” he explains. “If your credit history shows that you typically pay your bills on time, this statement could help to explain an isolated instance or period of derogatory credit.” REPAIRING BAD CREDIT
How can you repair lousy credit after a divorce? For starters, it doesn’t happen overnight. Stewart notes that credit problems generally stay on your record for seven years, while bankruptcies can remain for up to 10. The good news is there are some key action steps you can take to repair credit damaged during a divorce.