There are so many items to address when going through a divorce, it can be hard to prioritize. Personal credit often gets pushed to the bottom of the list. Part of this is because it is confusing and most people don’t know what to do about their credit.
Here are 4 simple steps you can take and things you should consider early in your divorce process.
Review your credit:
In the process of separating your life from your spouse, you should also know what parts of your financial life need to be separated, too. Knowledge is power, and what you don’t know CAN hurt you. So, check your credit report!! There are endless sites online where you can do this. Some are free, some charge.
AnnualCreditReport.com allows you a free copy of your report from each of the three credit bureaus. The problem with this site is that all three reports come out separate. So, if you have a 20 page credit report, you are now dealing with 60 pages. Credit can be confusing enough and this site does not make it simpler. Plus, AnnualCreditReport.com does not give you a credit score.
For an initial review of your credit, CreditKarma.com will suffice. You will have to enter a credit card, but the report is free. The down-side of this site is that you only get 2 of the 3 bureau reports. Experian is not available because they want you to use their site.
On the plus side, you do get your credit scores. Understand, there are a lot of different scoring models, so don’t get too tied up in the score. Use it as a guide for where you credit is in the big picture, rather than worrying about the actual number.
CreditKarma.com is currently the best place to go, but it has one more flaw. You will get endless “suggestions” for how to improve your credit. This is how CreditKarma makes money. If you get the credit card they suggest, they receive an affiliate payment from the credit card company. While there is nothing wrong with that, it is important to understand that their motive in suggesting “products” to you is to make money. So, resist the temptation to make ANY changes to your credit report until you talk to a professional.
Payments on Joint Accounts, especially a Mortgage:
Recent late payments can devastate a credit score (100+ point drop). It is critical to make sure that all Joint Accounts, including any Mortgages, are paid timely each month. Usually, these can be monitored online to make sure they stay current.
Lenders don’t care who “promised” to pay the loan. If you are listed on the account, you are equally responsible for it being paid on time every month. Therefore, if it is not paid on time, the lender will report it to your credit.
Any joint accounts that can be closed, should be. Car loans and mortgages, however, can be trickier. Therefore, they need to be watched closely to avoid any late payments.
Establish credit in your name:
If most of your accounts are joint accounts with your spouse, you will need to start establishing credit in your own name. It is best to begin this process prior to closing those joint accounts because it will be easier to get new credit if you already have credit.
Don’t go crazy and open 10 accounts. Usually, 1 or 2 credit cards is all you will need. As you proceed through your divorce, you may need to add a car loan or a mortgage. So, it is important to leave room in your debt-to-income ratio for those items.
Establishing 1 or 2 credit cards in your name, early on, will allow those accounts to age while you proceed through the divorce process. This will offset the damage to your credit score caused by closing joint accounts.
Don’t delay:
Good credit is a marathon, not a sprint. Credit cannot be established overnight, nor can it be repaired instantly. So, it is critical to address credit issues early in the divorce process. Too often, the first time poor credit is discovered in a divorce is when a party is ordered by a court to finance their spouse off of the mortgage for the residential home.
Typically, an order of this nature must be complied with in 60 days. However, if Credit Repair is needed, it can take 5-7 months. Reviewing your credit early gives you time to make any necessary steps and can relieve a LOT of stress later in the process.
Following these four simple steps is critical in any divorce process. Credit can be confusing, frustrating and even overwhelming. Adding time pressure only makes this worse. You will do yourself a favor in the long run if you make sure your credit does not get pushed to the bottom of your divorce “To Do” list.