If you check your credit score on a regular basis, you may notice that certain factors make it go up or down. For example, paying off a loan would make your score increase. Missing a credit card payment would cause it to drop.
Going through a divorce can also cause your credit score to decline. To be clear, the change is not based on your marital status. It is not like you can file for divorce and see a lower score the next month. It is not a direct effect. It takes inaction on your part to see the negative effects of divorce on your credit. Here are several ways in which your credit score can take a hit after ending your marriage and what you can do to mitigate the damage.
The Damage of Joint Accounts
Many couples fail to understand that when a judge divides assets and debts in a divorce, the credit card companies are not aware of this arrangement. Your marital status has nothing to do with the contract you have with your lender. Therefore, you need to be aware that a divorce decree does not automatically drop your name from a joint account. The only way this can be accomplished is through closing accounts and refinancing. However, if there are still balances on these accounts, they still need to be paid, and both parties are still liable, regardless of what the judge says.
If the judge decides that your husband gets the house, for example, you are not automatically off the hook for payments. If your husband does not make timely mortgage payments, the lender can still legally seek payment from you—and ding your credit for missed payments. A refinance can put the home in your spouse’s name only, removing you from any liability.
Ideally, your spouse will pay any debts on time, but this does not always happen. Especially after a divorce, you cannot rely on the other party to be financially responsible. If you have a joint credit card, the best course of action is to get it closed immediately. You do not want your spouse to run up any more debt during this time and refuse to pay it. This could cause you to be liable for thousands of dollars in expenses that you did not authorize. Call the credit card company right away and look for a card in your name only.
Lack of Finances
Another way in which divorce can put a number of your credit is a lack of finances. The truth is that most people do not come out richer after a divorce. Lawyers and court fees are expensive. Across the United States, the average cost of a divorce is around $15,000. If your divorce if complex or contentious, you can expect it to cost even more.
If you did not work before the divorce, then you probably relied on your spouse to pay your bills. As a result, you will likely face even more difficulties as you attempt to live on your own. Your spouse will no longer pay your bills except for maybe supporting you with monthly alimony payments. Your finances are going to suffer. It is likely that instead of paying your credit card debt, you will be using that money to pay for groceries, rent, and other necessities.
There are two ways to solve this common issue — decrease spending and increase income. First off, make a budget. Find out how much you are spending each month and find ways to save money. For example, you might have to cut back on eating out once or twice a week. You might need to avoid Starbucks for a while. If you spend a lot of money on entertainment, find ways to cut back. Instead of cable, choose Netflix, Hulu or some cheap alternative.
The next step is to get another job. Even if you work full-time, it may be necessary to get a part-time job on evenings and weekends to make extra cash. This can sound exhausting, but many people do it. You can try to find a job near your home or even work from home. If you have writing or computer skills, you can make good money freelancing. Many jobs can even be done in your spare time, so you do not have to commit to a set schedule.
Revenge Combined With Access to Money
While the ideal divorce would be amicable and agreed upon by both parties with no hard feelings, that is rarely the case. There are many divorces in which one party wants to stay married. Others have been cheated on and want to make the cheater pay for their actions.
If an angry spouse has access to a joint credit card account, they can do a lot of damage. It is not unheard of for a jilted spouse to have a shopping spree during a divorce. The shopping sprees may even continue after the divorce has been finalized. If neither party takes action to close the account, the revenge can go on until the credit card reaches its limit.
It cannot be expected that either party will act gracefully during a divorce. Divorce is an emotional experience. Everybody reacts differently and you cannot expect your spouse to be rational. If divorce is even an option, start canceling credit cards right away. Any delay can be costly, as the financial damage caused by a divorce can last many years.
Seek Legal Help
Divorce can affect your life in many ways, and it can even damage your credit if you are not careful. A knowledgeable lawyer or financial planner can help ensure that your finances are in order after a divorce.
Ending a marriage is a complex task. Palm Beach divorce attorney Scott J. Stadler can help you understand what to expect in a divorce. He can help you move on smoothly. To schedule a consultation, call his office at (954) 346-6464.