Law

Tips for Rebuilding Your Credit after a Divorce

While marital status does not feature in a credit report, how your finances get split may negatively affect your credit. As such, the effects of a divorce on your credit are indirect; nonetheless, the impact can reduce your credit rating profoundly.

For instance, if the divorce decree instructs your partner to start paying the mortgage alone and they default, your rating will drop. Note that this only happens when the credit line in question was applied under both your names.

Other than loans, a change in the household’s income can necessitate taking on new lines of credit, lowering your credit scores. Considering the many ways that a divorce can affect your creditworthiness, here are some worthy tips for rebuilding credit: 

1.     Adjust your Budget

If much of your household’s budget was being taken care of by your spouse, your budget may have to shrink. Prioritize timely repayment of bills above all else. The reason is that payment history carries the lion’s share during credit score calculation.

You may have to move to a smaller apartment, reduce your subscriptions, and lower your insurance premiums. The idea is to ensure that come the end month, your financial obligations are within your income.

That said, divorce does not necessarily mean having to lower your living standards. However, to keep up with your pre-divorce luxuries, you may need to get a second job or rack up more overtime.

2.     Deal with Joint Credit Accounts

Typically, with shared credit, either party can access money at their convenience. For instance, bad usage of a joint credit card by your ex-spouse will continue reducing your credit rating long after the divorce.

To ensure your credit is firmly within your control, ensure that the decree stipulates which debts you are to repay. The next step is to remove your name from the debts that you aren’t responsible for. This is easier said than done and requires your partner to do any of the following under their own name:

  • Refinance
  • Balance transfer
  • Consolidation

3.     Get Advice from a Financial Advisor

Dealing with divorce can be daunting; from meetings with lawyers in an adversarial process to the emotional trauma that comes with the separation. This can leave you without time to deal with your bills and access your new financial reality. The situation is made worse if your spouse was the one dealing with the finances.

A financial advisor or consumer credit agent helps you come up with a debt management plan. They guide you on how to rank debts, build savings, and make the hard decisions such as filing for bankruptcy. Above all, a credit advisor can put you on a path to rebuild credit and improve your rating.

4.     Get New Credit

In the instance where your partner dealt with all finances, you need to learn how to build credit on your own and fast. The best way is to repay monthly debts timely. Also, avoid applying for loans that you don’t need.

Without any individual credit history or low credit scores, you need to apply for new lines of credit. Start by getting a credit card for people with low credit scores.

Such include a secured credit card whose limit is the amount of deposit you can afford. If well managed, the deposit is refunded.

Go for a card that can later be upgraded into an unsecured credit card with diligent usage. Limited-purpose cards such as credit cards for major retailers and gas stations are also easy to get with bad credit.

Bottom Line

To rebuild your credit after a divorce, start by knowing your current credit standing. The best place to begin is on FICO.com for your credit scores to know if you rank as a risky or favorable debtor. This will help you know what kind of terms lenders are likely to offer you.

Additionally, apply for your free credit reports from the major credit bureaus or AnnualCreditReport.com. Review the reports to find out what is adversely affecting your credit and start improving on it.  

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