Divorce can bring a substantial hit on your finances if you aren’t careful. As a married couple, when you have merged your money matters together it can be a tricky situation to untangle after the fact. Your names even being linked together on a variety of purchases, credit cards, and loans can be complicated to dissolve.
It can especially tie the two of you together credit-wise until long after the divorce papers are signed and finalized. Keep in mind you still have an individual credit score even if you are married, but how you used your credit jointly as a couple during the marriage can reflect the financial habits that you created together. This is only true for the most part when you have joint accounts opened during the marriage. Here are four ways that divorce can affect your credit score.
1. When an Ex-Spouse Doesn’t Pay Joint Accounts on Time
If you have settled in court who is going to pay which credit card bills after the divorce, it’s important to make sure those debts get paid off on time. This could affect your credit score if those bills are paid late or not at all. The creditors don’t care that you two got a divorce, they just want your debts paid off on time.
2. Not Enough Credit History
In a marriage, if all the credit used was from one spouse than the other spouse might not have a fully utilized credit history or any credit history at all. For example, say you got married pretty young and everything was in your spouse’s name because you stayed home to raise the children, then you might not have fully used your credit. This can cause you to have a pretty low credit score which can prevent you from getting the loans or higher credit limits you could need later on to buy a house or purchase a car.
If you are struggling to understand how credit scores and anything debt related works, educate yourself. This happens many times when one spouse was the one who handled the finances. Check into the Consumer Financial Protection Bureau to help1. This United States government based website has all kinds of helpful consumer tools and resources which can help you understand these financial matters better, especially regarding credit scores.
3. Credit Limits Go Down
When you have to separate joint accounts and your income alone is obviously less than the two of you were making when you were married, this could affect your credit score. The credit card company may lower your maximum limits and your debt-to-income ratio will change affecting your score in the end.2 It could possibly be lower than when you were married listing a higher income on joint accounts.
4. Not Paying Your Own Bills on Time
The financial impact of divorce can also make you late to pay your own bills when you find that your own solo income doesn’t stretch as far. That can be difficult to get used to at first. Sometimes it means making a total lifestyle change. Making a budget and sticking to it can help you get in the habit of paying your bills on time and planning your new reality post-marriage.
Divorce is an emotional time filled with many important decisions especially financial ones that will affect your future. If you are struggling to figure out the best way to go forward with financial confidence once your marriage is dissolved, talk to a trusted financial advisor. They will be able to guide you in the right direction to ensure you are making smart decisions regarding your credit and any long-term financial matters you have questions about.