Divorce has no direct impact on a person’s credit. However, divorce tends to produce enormous changes in someone’s financial situation, meaning that it can have an indirect impact on their credit. As a result, people who are going through a divorce should read up on the potential issues so as to prepare themselves. Here are 10 things that people should know about the impact that a divorce can have on someone’s credit:
Going From Two Incomes to One Income
People who are going through a divorce should draw back post-divorce budgets ahead of time. This is because going from two incomes to one income is often said to be the single greatest financial impact that a divorce can have. As a result, it makes sense to soften that blow by planning out the new spending patterns based on the new cash inflows.
Check the Credit Report
The divorce process obligates both spouses to reveal the state of their finances. However, it is far from being unknown for one spouse to conceal some of their finances from the other. This means that people who are going through a divorce should check their credit report to make sure that there are no unknown accounts bearing their name.
Continue Monitoring the Credit Report
Speaking of which, people who have gone through a divorce should continue monitoring their credit reports. Primarily, this is because constant vigilance can protect them from a wide range of financial issues, with an excellent example being their ex failing to make the payments on the portion of their shared debt that was allotted to them.
The Division of Debt Doesn’t Change the Contract
This is important because even if the court decides on the division of the debt, that doesn’t change the nature of the contract that was signed by the couple. In other words, if an ex fails to make the payments on their portion of their shared debt, that is going to have a negative effect on both of their credit scores.
Credit Limits Can Change
It is not uncommon for creditors to check the income of their borrowers on a regular basis. As a result, someone who has gone through a divorce could see their credit limits change for the worse afterwards. This can be a serious problem because that can bring said individual’s outstanding balance much closer to their maximum credit, which is one of the most important factors for calculating someone’s credit score.
People Can Get Confused About Their New Financial Responsibilities
Divorce tends to produce big changes in a person’s financial situation, particularly since it can come with new financial responsibilities. As a result, people who are unsure about their new financial responsibilities should make sure to speak to an attorney, a mediator, or some other source of expertise about their new situation as well as what is now expected of them.
Split Joint Accounts
People who go through a divorce should split their joint accounts as soon as possible. After all, if they maintain their joint accounts, that could cause them to become responsible for their ex’s financial mistakes. For that matter, issues with a joint account can lead to increased tensions, which are never good for the chances of a smooth and uncomplicated divorce.
Speaking of which, it might be worthwhile for whoever ends up with the house to seek a refinancing of the mortgage, which will help them put it under one person’s name. However, be warned that refinancing means that the creditor will be looking at the borrower’s credit score as well as other measurements of creditworthiness, meaning that the conditions might not be as good as what the couple had before their divorce.
Maintain Good Relations
Spite can make the inherent financial problems of a divorce that much worse. As a result, it makes sense for people going through a divorce to maintain good relations with their ex. Moreover, it should be noted that maintaining good relations can help with the other issues as well, thus making an already stressful experience a little bit less so.
Keep In Touch
People who have gone through a divorce should continue to keep in touch with their exes if there are lingering financial issues that have to be handled. This is because keeping in touch will make it easier for them to coordinate on their issues, financial or otherwise. As a result, this is one more reason that maintaining good relations with the ex is a good idea.